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Document of
The World Bank Group

FOR OFFICIAL USE ONLY

Report No. 115135-ET

Public Disclosure Authorized

INTERNATIONAL DEVELOPMENT ASSOCIATION

INTERNATIONAL FINANCE CORPORATION
MULTILATERAL INVESTMENT GUARANTEE AGENCY

COUNTRY PARTNERSHIP FRAMEWORK

FOR
Public Disclosure Authorized

THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

FOR THE PERIOD FY18-FY22

May 22, 2017

Public Disclosure Authorized

Country Management Unit, AFCE3

Africa Region

The International Finance Corporation

The Multilateral Investment Guarantee Agency

This document has a restricted distribution and may be used by recipients only in the
performance of their official duties. Its contents may not otherwise be disclosed without World
Bank Group authorization.
 The date of the last Country Partnership Strategy Progress Report was October 17, 2014

CURRENCY EQUIVALENTS
(Currency Unit: Ethiopian Birr (ETB))
(US$1.00 = ETB 22.98 as of April 30, 2017)

FISCAL YEAR
July 1 – June 30

ABBREVIATIONS AND ACRONYMS

AAU Addis Ababa University DLI Disbursement-Linked Indicator
AGP Agricultural Growth Program DP Development Partners
ASA Advisory Services and Analytics DPO Development Policy Operation
BP Bank Policy DSA Debt Sustainability Analysis
Ethiopian Institution of the
BSC Balance Score Card EIO
Ombudsman
Country Assistance Strategy Electricity Network Reinforcement &
CASCR ENREP
Completion Report Expansion Program
CE Citizen Engagement ESAP Ethiopia Social Accountability Program
Competitiveness and Job Creation
CJCP ETB Ethiopian Birr
Project
Ethiopian People’s Revolutionary
CLR Completion and Learning Review EPRDF
Democratic Front
Common Market for Eastern & Enhancing Shared Prosperity and
COMESA ESPES
Southern Africa Equitable Services
CPF Country Partnership Framework FAO Food and Agriculture Organization
Country Portfolio Performance
CPPR FDI Foreign Direct Investment
Review
CPS Country Partnership Strategy FGM Female Genital Mutilation
Country Partnership Strategy Financial Transparency and
CPSPR FTA
Progress Report Accountability
CRGE Climate Resilient Green Economy FY Fiscal Year
CRW Crisis Response Window GBV Gender-Based Violence
CSA Central Statistical Agency GDP Gross Domestic Product
General Education Quality
CSO Civil Society Organization GEQIP
Improvement Project
DAG Development Assistance Group GIL Gender Innovation Lab
UK Department for International
DFID GoE Government of Ethiopia
Development
DHS Demographic and Health Surveys GRM Grievance Redress Mechanism

i
GTP II Growth and Transformation Plan II PER Public Expenditure Review
Household and Consumption and
HCES PforR Program for Results
Expenditure Survey
Implementation Completion
ICR PFM Public Finance Management
Report
Information and Communication
ICT PLR Performance and Learning Review
Technology
International Development
IDA PPP Public-Private Partnerships
Association
IEG Independent Evaluation Group PSNP Productive Safety Nets Program
IFC International Finance Corporation PSW Private Sector Window
Intergovernmental Authority on
IGAD RAI Rural Access Index
Development
IMF International Monetary Fund SCD Systematic Country Diagnostic
IPP Independent Power Producer SDG Sustainable Development Goals
JIP Joint Implementation Plan SFC Sana’a Forum for Cooperation
Living Standards Measurement
LSMS SLMP Sustainable Land Management Program
Study
M&E Monitoring and Evaluation SME Small and Medium Enterprise
Southern Nations, Nationalities and
MDG Millennium Development Goals SNNPR
Peoples Region
Multilateral Investment Guarantee
MIGA SOE State-Owned Enterprise
Agency
Ministry of Finance and Economic
MoFEC SSA Sub-Saharan Africa
Cooperation
Micro, Small and Medium
MSME TFP Total Factor Productivity
Enterprises
Urban Local Government Development
MW Megawatts ULGDP
Program
NCB Non-Concessional Borrowing UN United Nations
National Strategy for the
NSDS II UNDP United Nations Development Program
Development of Statistics II
OP Operations Policy UNHCR United Nations Refugee Agency
Operations Policy and Country
OPCS UNICEF United Nations Children’s Fund
Services
PBS Protection of Basic Services UPSNP Urban Productive Safety Nets Project
Pastoral Community Development United States Agency for International
PCDP USAID
Project Development
Public Expenditure and Financial
PEFA VAT Value Added Tax
Accountability

ii
 Water Supply, Sanitation & Women Entrepreneurship Development
WASH WEDP
Hygiene Project
WBG World Bank Group

IBRD IFC MIGA

Vice President: Makhtar Diop Dimitris Tsitsiragos Keiko Honda
Director: Carolyn Turk Oumar Seydi Merli Baroudi
Task Team Leaders: Nicole Klingen Adamou Labara Stephan Dreyhaupt
Judith Laufman

iii
 FY18-FY22 COUNTRY PARTNERSHIP FRAMEWORK
FOR
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

TABLE OF CONTENTS

I. INTRODUCTION ...................................................................................................................1

II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA ..............................................................3

SOCIAL AND POLITICAL CONTEXT .............................................................................................. 3
ECONOMIC CONTEXT .............................................................................................................. 6
POVERTY AND THE SPATIAL DIMENSION OF SHARED PROSPERITY ................................................. 12
DRIVERS OF POVERTY REDUCTION AND DEVELOPMENT CHALLENGES ............................................ 18

III. WORLD BANK GROUP COUNTRY PARTNERSHIP FRAMEWORK ........................................... 23

A. GOVERNMENT’S GROWTH AND TRANSFORMATION PLAN II.................................................... 23

B. WBG COUNTRY PARTNERSHIP FRAMEWORK FY18-FY22...................................................... 23

LESSONS FROM THE FY13-FY16 COUNTRY PARTNERSHIP STRATEGY (CPS) ................................... 23
OVERVIEW OF WBG STRATEGY .............................................................................................. 25
FOCUS AREA 1: PROMOTE STRUCTURAL AND ECONOMIC TRANSFORMATION THROUGH INCREASED
PRODUCTIVITY ..................................................................................................................... 28
FOCUS AREA 2: BUILDING RESILIENCE AND INCLUSIVENESS ......................................................... 31
FOCUS AREA 3: SUPPORTING INSTITUTIONAL ACCOUNTABILITY AND CONFRONTING CORRUPTION ..... 33

C. IMPLEMENTING THE COUNTRY PARTNERSHIP FRAMEWORK .................................................... 34

FINANCIAL ENVELOPE AND IDA18 ALLOCATION........................................................................ 34
FINANCIAL MANAGEMENT AND PROCUREMENT ........................................................................ 38
PARTNERSHIPS AND DONOR COORDINATION ............................................................................ 41
MONITORING AND EVALUATION............................................................................................. 42

IV. MANAGING RISKS ........................................................................................................... 43

ANNEX 1: ETHIOPIA CPF – FY18-FY22 -- RESULTS MATRIX ....................................................... 47
ANNEX 2: COMPLETION AND LEARNING REVIEW (CLR) .............................................................. 71
ANNEX 3: GTP II OBJECTIVES AND INDICATORS ...................................................................... 103
ANNEX 4: SELECTED INDICATORS OF WORLD BANK PORTFOLIO PERFORMANCE AND MANAGEMENT104
ANNEX 5: IDA OPERATIONS PORTFOLIO (AS OF MAY 22, 2017) ............................................... 105
ANNEX 6: IFC STATEMENT OF HELD INVESTMENTS.................................................................. 106
ANNEX 7: MIGA PORTFOLIO ............................................................................................... 107
ANNEX 8: SPATIALLY INCLUSIVE GROWTH IN ETHIOPIA ............................................................ 108
ANNEX 9: SYSTEMATIC COUNTRY DIAGNOSTIC (SCD) FOR ETHIOPIA .......................................... 110
ANNEX 10: DONOR MAPPING ............................................................................................. 111
ANNEX 11: GENDER FILTER FOR THE WORLD BANK GROUP ETHIOPIA PORTFOLIO ........................ 112
ANNEX 12: CPF CONSULTATIONS ......................................................................................... 116
ANNEX 13: INFORMATIONAL ANNEX ON FORCED DISPLACEMENT IN ETHIOPIA ............................ 119
ANNEX 14: MAP OF ETHIOPIA ............................................................................................. 129

iv
 LIST OF FIGURES

Figure 1: SCD Binding Constraints ........................................................................................................... 1

Figure 2: Refugees in Ethiopia ................................................................................................................ 4
Figure 3: Potential Output and Factor Productivity Growth, percent .................................................. 10
Figure 4: Spatial distribution of poverty ............................................................................................... 13
Figure 5: Road density and rural access................................................................................................ 15
Figure 6: Women Entrepreneurship Development Project (WEDP) ..................................................... 17
Figure 7: Spatial dimensions of malnutrition ........................................................................................ 18
Figure 8: Population Pyramid: 2015 and 2050...................................................................................... 20
Figure 9: CPF Framework ...................................................................................................................... 27
Figure 10: World Bank Portfolio by Woreda, 2017 ............................................................................... 28

LIST OF TABLES

Table 1: Selected Economic Indicators ................................................................................................. 12

Table 2: Indicative FY18-FY19 IDA Lending Program ............................................................................ 37
Table 3: Knowledge and Convening Services FY18-FY19 ...................................................................... 40
Table 4: Systematic Operations Risk-Rating Tool (SORT) for Ethiopia .................................................. 43

LIST OF BOXES

Box 1: Resilience and the Productive Safety Nets Program (PSNP) ........................................................ 5
Box 2: Governance, Decentralization and Citizen Engagement.............................................................. 8
Box 3: Enhancing Shared Prosperity through the Equitable Services (ESPES) Project ......................... 14
Box 4: Gender in the Ethiopia CPF ........................................................................................................ 16
Box 5: Leveraging Private Participation in Energy ................................................................................ 22
Box 6: Advisory Services and Analytics (ASA) Products ........................................................................ 39

v
 FY18-FY22 COUNTRY PARTNERSHIP FRAMEWORK
FOR
THE FEDERAL DEMOCRATIC REPUBLIC OF ETHIOPIA

I. INTRODUCTION

1. Ethiopia has achieved substantial progress in economic, social and human development over
the past decade. Poverty rates declined from 55.3 percent in 2000 to 33.5 percent in 20111, with
significant progress towards achieving the Millennium Development Goals (MDGs). New challenges
lie ahead as Ethiopia seeks to attain lower middle-income status by 2025, as articulated in its Second
Growth and Transformation Plan (GTP II). This Country Partnership Framework (CPF) for Ethiopia, for
the period FY18 to FY22, is designed to support GTP II while supporting the World Bank Group’s (WBG)
twin goals of eliminating extreme poverty and boosting shared prosperity and achievement of the
Sustainable Development Goals (SDGs).

2. The CPF draws on the findings of the WBG’s 2016 Systematic Country Diagnostic (SCD)2 for
Ethiopia, which identified eight binding constraints to ending extreme poverty and boosting shared
prosperity, along with two overarching
Figure 1: SCD Binding Constraints
challenges: the need for a sustainable
Analytical Framework Binding Constraints financing model for growth, and
1. Low human development (education and health) inadequate feedback mechanisms to
Strengthening 2. Unsafe water use in rural areas
facilitate citizen engagement and
rural livelihoods government account- ability. The SCD
for the bottom 3. Lack of resilience to drought
40 percent analytical framework, and the resulting
4. Poor market access for farmers binding constraints for Ethiopia, are
5. Limited credit for private investment presented in Figure 1. Highlights of the key
Fostering
faster and 6. Uncompetitive private sector findings of the SCD, along with the binding
more inclusive
structural change 7. Weak urban planning and land management
constraints and two challenges, are
depicted in an infographic in Annex 9. This
8. Limited safety nets in urban areas
CPF succeeds the Ethiopia FY13-FY16
Challenge 1: Unsustainable financing model
Country Partnership Strategy (CPS), which
Challenge 2: Inadequate feedback mechanisms was discussed at the Board on August 29,
2012 (Report No. 71884-ET). It also reflects
lessons learned and resulting suggestions from the CPS Completion and Learning Review (CLR), which
is presented in Annex 2.

3. Following a decade of strong economic growth in Ethiopia, the CPF addresses the challenges
of forging a growth path that is more broadly inclusive and sustainable. Lending and non-lending
interventions will continue to leverage Ethiopia’s federal system, with its regional decision-making, as
the vehicle through which to address inequality in Ethiopia and provide more equitable access to
quality services in all woredas (district level). The CPF program will focus on: (i) promoting structural
and economic transformation through increased productivity; (ii) building resilience and inclusiveness
(including gender equality); and (iii) supporting institutional accountability and confronting corruption.
4. This CPF adopts a spatial lens through which this five-year program will seek to deliver bold
results and to tackle two of the greatest spatial challenges to Ethiopia’s quest to achieve lower

1
Based on the US$1.90/day in 2011 purchasing power parity terms. During the same period, using the national
poverty line, the rate of poverty fell from 44.2 percent to 29.6 percent.

2
http://documents.worldbank.org/curated/en/913611468185379056/Ethiopia-Priorities-for-ending-extreme-
poverty-and-promoting-shared-prosperity-systematic-country-diagnostic

1
middle-income status by 2025. First, because of intra-regional and inter-woreda disparities in
resource endowments and access to services (see maps in Section II), there are pockets of poverty
even in relatively well-off areas of the country. These areas require targeted interventions to support
more inclusive growth. Similarly, certain regions (such as the lowlands) or population groups (such as
pastoralists or women) may require customized development solutions to meet their particular needs.
Second, growth-enhancing investments need to focus on maximizing the potential to create jobs,
deliver services, and connect farms to towns and secondary cities and leverage corridors that can help
to boost value addition and competitiveness. This CPF therefore adopts a spatial lens through which
this five-year program will seek to tackle these challenges. The analytical underpinnings for this
spatially inclusive approach to growth are presented in Annex 8.

5. This CPF will leverage the full range of WBG institutions and instruments. It will address each
of the IDA18 special themes, access IDA18 special windows, and seek to be increasingly agile in
preparing operations and advisory/analytical work that respond creatively to client demand. Given
the importance of supporting private sector-led growth, this joint CPF will feature an even more
prominent role for both the International Finance Corporation (IFC) and the Multilateral Investment
Guarantee Agency (MIGA). In particular, IFC will adopt a holistic approach to help open new markets
and crowd in capital from the private sector. This includes active use of the principles of the WBG
“cascade approach” to infrastructure, which seeks to expand infrastructure financing options by
optimizing scarce public funds – in cases where commercially viable options are limited -- and helping
to effect policy reforms that will crowd in private sector capital and create new markets.

6. A CPF for maximum impact. The increased focus on outcomes marks a departure from the past
input/output approach. These are but a few of the highly ambitious CPF targets:

 The number of people with access to electricity (on- and off-grid) will be increased to
50 percent by the end of FY21;

 Learning outcomes for girls in grades 4 in English and Math will improve by about one
quarter and one third, respectively;

 The contraceptive prevalence rate for rural women will be boosted from 32 to 45
percent;

 Stunting prevalence in children aged 0-23 months will decrease by 36 percent;

 Agricultural productivity for female-headed households, as measured by a yield index

for cereals and pulses, will increase by 23 percent;

 Up to 14 million people will be protected from food insecurity;

 The number of people with access to improved water sources and basic sanitation will
increase by one fifth and 43 percent, respectively;

 Travel time on upgraded roads will be reduced by more than half (56 percent),
accelerating market access for farmers; and

 The area of reforested lands and the number of land-use certificates issued will double.

2
 II. COUNTRY CONTEXT AND DEVELOPMENT AGENDA

Social and Political Context

Geographic and Regional Context

7. Ethiopia is a large and diverse country, spanning a land mass of more than 1 million km 2 and
an estimated population of approximately 92 million (World Bank, 2016), more than 80 percent of
whom live in rural areas. With an annual population growth rate of 2.5 percent (2015), Ethiopia’s
population is estimated to reach 150 million by 2035 (World Population Prospects, 2015 Revisions,
United Nations (UN)). Ethiopia is a country of 98 nationalities and peoples, with roughly 93 languages
spoken.

8. Landlocked Ethiopia, surrounded by a number of fragile and conflict-afflicted states, plays an

important role in promoting regional integration and mitigating regional conflicts. Ethiopia’s
geopolitical landscape is complicated by fragility and conflict in neighboring countries and the
resulting flow of refugees who are fleeing those conditions. Relations with Djibouti are especially
close, as Ethiopia relies on Djibouti for 90 percent of its land-based trade while Djibouti receives power
and fresh water from Ethiopia. Since the 1993 independence of Eritrea, when Ethiopia lost access to
the sea, most trade-related cargo is shipped via Djibouti. In order to improve regional stability,
Ethiopia has supported peace-building efforts in Somalia, Sudan and South Sudan by mediating peace
talks and contributing personnel to peace-keeping operations.

9. Ethiopia is a member of regional communities such as the Common Market for Eastern and
Southern Africa (COMESA), the Intergovernmental Authority on Development (IGAD), and the
Sana’a Forum for Cooperation (SFC). According to the Regional Integration Index 20163, Ethiopia is an
average performer on regional integration among IGAD countries, and the lowest performer overall
on regional integration within COMESA. In terms of trade relations with its neighbors, exports to
regional markets (Somalia, Djibouti, Sudan, Kenya and Egypt) account for approximately 20 percent
of Ethiopia’s total exports. Major exports to Somalia included khat, live animals, and fruits and
vegetables; while key exports to Djibouti were khat, live animals, fruits and vegetables, and electricity.
Beyond official statistics, there is significant cross-border trade that is not measured but is an
important source of income for border communities.

Ecology and Resilience

10. The nature of agriculture-based livelihoods varies considerably across the country based on
agro-ecological conditions. The wet highlands, predominantly in the central, northern and western
part of the country, are home to 80 percent of the population who are primarily dependent upon rain-
fed cultivation. The eastern and southern parts of the country are hot, arid lowlands, which are home
to mobile pastoralists. Climate change has already had an impact: temperatures have increased by
approximately one degree Celsius since the 1960s. Agricultural systems are highly dependent on
climate and are vulnerable to more frequent and extreme droughts and floods. Droughts alone can
reduce total gross domestic product (GDP) by one to four percent, and rising population densities are
placing added pressure on these fragile eco-systems through land degradation, forest loss, and
increased water stress and soil erosion. Differentiated approaches are required to increase the
productivity and resilience for highland and lowland agriculture-based livelihoods.

3
The index, which is a joint project of the African Development Bank, the African Union Commission and the
Economic Commission for Africa, covers the following dimensions: free movement of persons, trade integration,
productive integration, regional interconnections and infrastructure, and macroeconomic policy convergence .

3
11. Ethiopia’s ability to manage drought has improved dramatically over the past decade, but
frequent droughts remain a challenge. Past droughts resulted in widespread hunger and extremely
poor nutritional outcomes. Ethiopia has experienced more than 15 drought events in the last 50 years,
including the 2015/2016 El Niño drought and the “Indian Dipole” event in 2017. The majority of
agriculture is rain-fed and highly vulnerable to drought. Pastoral communities in the fragile, semi-arid
lowlands are also prone to climatic shocks. Over the past decade, Government of Ethiopia (GoE) has
built resilience by rehabilitating land, improving watershed development and management, and
expanding irrigation coverage, including introducing new irrigation techniques in many parts of the
country. Ethiopia improved the resilience of the poorest through cash or food payments and by
engaging them in community-driven public works programs aimed at landscape restoration, water
management, and smallholder farming (see description of the Productive Safety Nets Program (PSNP)
in Box 1 below). Despite these efforts, the current drought has brought acute water and food
shortages to pastoral areas of southern Ethiopia and across the Horn of Africa. GoE issued a
humanitarian appeal in January 2017 for 5.6 million people, at an estimated cost of US$948 million.
The rising frequency and severity of these droughts call for urgent action, to move even further from
reliance on humanitarian responses and towards development of robust systems including disaster
risk financing mechanisms.

12. Ethiopia hosts the fifth-largest refugee population in the world, and is the second-largest host
of refugees in Africa (after Uganda). Ethiopia is accommodating more than 800,000 refugees
displaced by conflicts, political events, and civil wars in
Figure 2: Refugees in Ethiopia neighboring countries - South Sudan, Somalia, Eritrea,
Sudan and Yemen (see Figure 2). There are also an
estimated 450,000 internally displaced Ethiopians
within the country, and more than 86,000 Ethiopians
have sought refuge in other countries (mainly in
Sudan). Ethiopia hosts more than 350,000 refugees
from South Sudan alone, and the intense offensives
currently taking place in Upper Nile state of South
Sudan could lead to a significant and sudden increase
in refugee flows. These numbers have risen sharply in
recent months with the escalation of conflict in South
Sudan and drought-related migration from Somalia;
and the presence of these refugees is having an impact
on the food security, public services, and livelihoods of
host communities. A joint World Bank - United Nations
Refugee Agency (UNHCR) report, “Forced
Figure 1. Refugees in Ethiopia
Displacement and Mixed Migration in the Horn of Africa”, concluded that support to refugees must
ensure that host populations also benefit, through better access to services and greater livelihood
opportunities, so that they continue to welcome the refugees. A recent WBG mission to Ethiopia
traveled around the country, visiting refugee camps and meeting with multiple stakeholders on this
proposed approach. Their findings and recommendations are summarized in the “Informational
Annex on Forced Displacement in Ethiopia” in Annex 13.

13. Ethiopia is a rapidly changing country, yet its social and political institutions have not fully
kept pace with the past decade of economic growth. Until 1991, increasing state centralization was
underpinned by a political culture reflecting strong hierarchies and deeply rooted social stratification.
The ruling party (the Ethiopian People’s Revolutionary Democratic Front - EPRDF) has been in power
for more than 25 years since overthrowing the former military regime. The EPRDF set up a federal

4
 Box 1: Resilience and the Productive Safety Nets Program (PSNP)

Ethiopia remains highly vulnerable to a range of shocks, notably the severe drought of 2015/2016. In December
2014, the Government announced that 18.2 million people required emergency food aid, while millions more
suffered from lost assets and livelihoods.

The Government response, the largest in the history of Ethiopia, with US$700 million allocated from the national
budget and hundreds of millions more from the international community, allowed the GoE to protect its people
and development gains from the worst effects of the drought. Support from the international community
included two infusions of resources from the IDA17 Crisis Response Window (CRW) totaling US$200 million. In
most of the affected areas, the Productive Safety Nets Program (PSNP)* played a key role in the Government’s
response, providing predictable cash or food payments to eight million of the poorest people. Contingency
budgets at the woreda and federal levels enabled the Government to scale up support further, by providing
safety net support to additional households or extending the duration of support. A series of impact evaluations
revealed that the PSNP improved the food security of the poorest households in rural Ethiopia, with the food
gap among PSNP public works clients falling, on average, from about three months in 2006 to 1.75 months in
2014. Distress asset sales have also declined: in 2010, 54 percent of public works households reported making a
distress sale of assets in order to meet food needs and 26 percent did so in order to obtain cash for non-food
emergency cash needs. By 2014, these percentages had dropped to 25 and 13 percent, respectively.
There is also evidence that PSNP can improve participants’ resilience. In highland regions, households living in
areas that experienced a minimum of two droughts but also receiving PSNP payments for two or more years did
not see their food security decline, and households receiving four or five years of payments experienced an
increase in their livestock holdings. Following a period of drought, households participating in the PSNP appear
to recover faster than households that are not in the program.
Beyond the direct benefits to households, the public works of the PSNP address rural vulnerability by
contributing to Government investments in sustainable land management. PSNP public works show significant
improvements in the majority of watersheds in land cover, range of plant species, increased production of forage
and medicinal plants, increased groundwater and improved spring yields, reduced run-off and soil loss, reduced
flooding on private croplands, and increased cropping land through land reclamation. To date, some 1.2 million
hectares have been treated through soil and water conservation (SWC) activities within closed areas, resulting
in increased income for community groups adopting new livelihoods activities such as bee-keeping, and
increased crop yields. Recent research indicates that public works activities are enhancing climate resilience in
Ethiopia: soil samples from PSNP public works sites have identified up to 300 percent increase in carbon
sequestration rates, together with markedly improved soil fertility.

* PSNP is a program managed by the GoE and funded by eleven development partners, including the World Bank.

structure (primarily along ethnic lines) devolving powers and mandates first to regional states and
then to the woreda (district) and kebele (village) levels. Ethiopia is a relatively new democracy: the
results of the elections in 2005, and in 2015, in which the Election Commission declared an EPRDF
victory, were contested.

14. Ethiopia’s impressive economic achievements have recently been accompanied by social
unrest and widespread demonstrations in the Oromia and Amhara regions. The demonstrations
exposed deep-rooted developmental, social and political concerns with Ethiopia’s state-driven model.
Protestors were demanding greater political voice and participation and drew attention to the growing
challenge of job creation for increasingly educated Ethiopian youth. The Government has
acknowledged that some of the concerns raised by protesters were legitimate, and is working to find
solutions through dialogue with opposition parties represented in Ethiopia and intensified citizen
engagement.

5
15. A six-month state of emergency was declared in October 2016 and remains in effect. The GoE
imposed a state of emergency on October 9, 2016, in response to growing unrest in the Amhara and
Oromia regions. The GoE announced on March 15, 2017, that it was lifting most of the emergency
restrictions. Notwithstanding this partial easing, the Ethiopian Parliament voted unanimously at end-
March 2017 to extend the state of emergency by an additional four months. While some opposition
parties welcome the dialogue the Government is seeking, there is criticism inside and outside the
country of the Government’s human rights record and lack of inclusion of all opposition groups. Most
recently, the UN Commissioner for Human Rights was invited to visit and concluded that Ethiopia “is
a country with tremendous assets – including, not least, the drive and creativity of its people. If it can
build a new momentum in upholding human rights protection, and demonstrating confidence in its
people, Ethiopia can shape a strong and cohesive society which truly benefits all. If it stumbles,
mistrust and grievance will grow, and this may well have considerable negative impact on prospects
for development and for the people's well-being”4.

Economic Context

16. Ethiopia’s recent growth acceleration was accompanied by a substantial decline in poverty.
Real GDP growth averaged 10.5 percent between 2003/04 and 2015/16, according to official data.
Growth was driven mainly by services and agriculture on the supply side, and private consumption
and investment on the demand side. The services sector has overtaken agriculture as the largest, in
terms of output, since 2010/11. Investment rates have increased substantially since the mid-1990s
with a commensurate decline in public consumption. This is in line with the developmental state
model which Ethiopia has adapted from the East Asian experience. However, this approach faces
challenges related to governance and citizen engagement (Box 2).

17. Economic transformation -- policies that actively pursue structural reforms -- has not played
a major role in the growth acceleration over the past decade. The WBG’s 2015 report “Ethiopia’s
Great Run: The Growth Acceleration and How to Pace It”5 concluded that Ethiopia lags behind in
reform areas such as domestic finance, the current account, the capital account, and services trade
restrictiveness. Economic transformation has been lackluster, as state-owned enterprises (SOE)
continue to play a dominant role in the economy.6 This approach worked well during the period of
growth acceleration as SOEs were used as vehicles for public investment to close the infrastructure
gap and to ultimately crowd-in the private sector. On the other hand, the SOE dominance left (and
continues to leave) little space for the private sector by crowding out credit markets and access to
foreign exchange. More structural reforms, as envisaged by the GTP II, will be needed to facilitate
economic transformation that ensures longer-term sustainability of the growth model. Even modest
structural reforms could have considerable impact on growth of GDP per capita. Indicative results
presented in the SCD showed that if Ethiopia were to catch up with the average Sub-Saharan African
(SSA) country in terms of financial liberalization, the rate of per capita GDP growth would rise by 1.9
percentage points per year.

4
http://ohchr.org/en/NewsEvents/Pages/DisplayNews.aspx?NewsID=21582&LangID=E

5
http://documents.worldbank.org/curated/en/693561467988949839/pdf/99399-REVISED-PUBLIC-thiopia-
Economic-Update-2-11-16-web.pdf

6
SOE investment is an important part of public investment and ranged between 3.4 and 10 percent of GDP
between 2007/08 and 2013/14. State-owned banks accounted for about two thirds of banking system deposits
in 2014/15 and the SOEs' share of credit from the banking system reached 20 percent of GDP in that same year.

6
18. Whereas structural transformation – the shift of economic activities and employment from
low- to high-productivity activities – has taken place to some extent in Ethiopia, it has been driven
by services. Ethiopia has only partly followed the traditional path of structural transformation often
associated with East Asia, where a strong rise in manufacturing (and away from agriculture) fueled the
growth of economies such as China, Korea and Vietnam. In Ethiopia, economic activity (output and
jobs) has shifted from agriculture and into construction and services, largely by-passing the critical
phase of industrialization.7 It is the more traditional form of structural transformation – which has
created employment and job opportunities outside agriculture and in urban centers in East Asia –
which is needed in Ethiopia. To facilitate industrialization, the Government strengthened its
institutional, legal and regulatory framework with a focus on promoting Foreign Direct Investment
(FDI) in light manufacturing, especially in the form of industrial parks. GTP II places primary focus on
advancing more traditional structural transformation, with the goal that Ethiopia would become a
manufacturing hub in Africa. This is an appropriate goal for enhancing the ability to create jobs through
the manufacturing sector and its supply chains that need domestic inputs from the agriculture and
service sectors.

7
Although Ethiopia has experienced high economic growth and some structural change in production away from
agriculture towards services, the similar shift in employment has been much more modest. Nevertheless,
agricultural employment did decline from 80 to 77 percent between 2005 and 2013. Because agricultural labor
productivity is so low, this shift gave rise to static efficiency gains as relative labor shares increased in
construction and services where the average value added of a worker is up to five times higher.

7
 Box 2: Governance, Decentralization and Citizen Engagement

Ethiopia styles itself as a developmental state and seeks to ensure that citizens benefit from the results of
development. Despite the strong results focus of the Government, there is a paradox of Ethiopia emphasizing citizen
engagement (CE) at the service delivery and woreda level, while limiting such participation at the higher levels. Party
members can advance by achieving visible results at the local level, such as an improvement in a woreda’s rate of
enrollment or provision of antenatal care. Decentralization brings service providers under the control of local
governments, making them, in theory, accountable to the community. In order for accountability to occur, local
residents must understand both the concept of service delivery and their options for voicing concerns.
The GoE has committed to enhancing citizens’ public participation in the development of activities and processes
through the good governance pillar in GTP II. This is consistent with the WBG strategic framework (2014) for
mainstreaming CE – and give citizens a stake in decision making to help improve development outcomes -- in 100
percent of WBG operations which have clearly identifiable beneficiaries by end-2018.
With support from donors, Ethiopia is testing and scaling up complementary strategies to strengthen citizens’ voice
and access to information. This has created an effective citizen engagement approach at the service delivery and
woreda level. The donor-supported framework comprises: financial transparency and accountability (FTA); the
Ethiopia Social Accountability Program (ESAP); and Grievance Redress Mechanism (GRM). Ethiopia’s FTA program
makes information about local government budgets and spending publicly available in a simple, clear format. Through
budget literacy training, citizens learn how to provide feedback to local authorities on budgets and provision of basic
services. A new rule has been implemented whereby woredas are instructed to consult with citizens before voting on
their budgets. ESAP, which started under PBS and is expanding more widely, uses structured social accountability tools
such as community score cards, citizen report cards, participatory budgeting, and direct meetings between service
providers and consumers to make services better, more accessible, and more effective. These tools are being used in
more than 223 woredas by about 4.5 million consumers. An independent evaluation is underway to examine the
impact of these tools and determine whether they should be made available nationally. PBS also helped to strengthen
and expand the use of GRM. A grievance redress mechanism provides the opportunity for an impartial third party to
review a transaction that has taken place between the government and a citizen or a group of citizens, who assert that
a government service or benefit has been denied, or some other harm has occurred. The Ethiopian Institution of the
Ombudsman (EIO) and the regional Grievance Handling Offices offer these services. The EIO is an independent entity
that has regional branches and is accountable to the Federal Parliament. Grievance Handling Offices, established in all
nine regional states, examine the validity of citizens’ grievances and explore ways to rectify them. These interventions
have generated appetite in non-participating areas, especially with regard to social accountability and GRM, and all
woredas increasingly see citizen engagement as a right that should be rolled out across the country.
This results culture, combined with the ambition of local officials to prove themselves by achieving results, has had
unintended and unfortunate consequences as well. Targets and deadlines have been pursued regardless of the costs,
on the assumption that the greater good outweighs the cost. Some of these unfortunate consequences have been
noted by high officials as flagrant violations of national policies and standards. Given the decentralized nature of
implementation in Ethiopia, it is difficult for federal or even regional officials to monitor such excesses. Therefore, a
focus during the CPF period is to support continued improvements in the reach and effectiveness of FTA, ESAP and
GRM and to strengthen the EIO.

19. The private sector in Ethiopia is nascent. This is visible, for instance, when measured in terms
of private sector credit to GDP where Ethiopia lags behind its peers. Private sector credit is only about
9 percent of GDP in Ethiopia compared to more than 20 percent in SSA. The experience of East Asian
developmental states such as China, South Korea, and Vietnam shows that private firm growth is
needed to lead the development process. Yet firm competitiveness in Ethiopia is limited by entry
barriers to starting a business: access to reliable energy; efficient trade logistics; and exporting based
on a more neutral exchange rate.

Productivity

20. Fostering faster and more inclusive structural transformation in Ethiopia requires
productivity-enhancing activities across all administrative levels, in all regions, and improvements
in all factors of production. Solutions to increase productivity in Ethiopia need to address the

8
constraints for an efficient use of the production factors: land, labor, capital, and enterprise. Doing so
in both rural and urban settings will also lead to more inclusive growth. Productivity enhancements in
rural settings will require improved management of natural resources including soils, water and
forests. In terms of labor, poor nutrition, health, and low skills levels of workers pose limits on job
growth; and there are labor market frictions in the intermediation between supply and demand for
jobs.

21. Improved Information and Communication Technology (ICT) is important to increase

productivity, advance structural transformation and contribute to poverty reduction and shared
prosperity. The SCD identified ICT as a possible constraint for the future. The SCD found that Ethiopia’s
ICT sector ranks among the bottom decile in most international indices8 and indicative simulations
showed that if Ethiopia were to achieve ICT services similar to those in China, labor productivity of
Ethiopian firms could rise by between 3.1 and 4.1 percent. As the Government implements GTP II,
including the drive to become a manufacturing hub, the challenges and opportunities of ICT become
more obvious and urgent. This is consistent with the argument in the SCD that as other constraints to
firm competitiveness are addressed, limited ICT coverage and costly access will increasingly become
a constraint to firm growth. ICT can also potentially help reduce extreme poverty and promote shared
prosperity by improving the flow of information and services, decreasing the relevance of distance,
expanding potential markets for businesses, providing opportunities for economic diversification, and
serving as a source of jobs.

Competitiveness

22. The current government economic strategy embodies a series of policy trade-offs that
prioritize public infrastructure investment and constrain the private sector. Currently, the allocation
of rationed credit and foreign exchange still benefits public investment through cheaper capital
imports. At the same time, however, this also crowds out the private sector. Likewise, the overvalued
real exchange rate cheapens public capital imports but undermines external competitiveness.
Substantial levels of domestic and external public borrowing to finance public infrastructure have
increased indebtedness. In sum, limited progress on structural economic reforms is preventing the
realization of associated efficiency gains. While the current approach worked well during the growth
acceleration to close the infrastructure gap through public investment, more structural reforms will
be needed in the future to fully establish market-based principles in competitive markets.

23. Projections of potential GDP growth indicate a slowdown in the medium term on account of
declining capital growth and lower-than-previous total factor productivity (TFP) growth. Figure 3
presents the historical trends since 2001 and projections for potential GDP growth. Potential GDP
growth is computed as a function of changes in the capital stock, labor force and TFP along the lines
of the Solow decomposition. Potential GDP growth increased from 6.4 percent in 2001 to 12.3 percent
in 2012. It subsequently declined to 9.8 percent in 2016, and is expected to decline further in the 2017-
21 projection period to about 8.3 percent (see also Table 1). Capital growth has been exceptionally
high over the past years and started to decline only recently with a projected continuation of that
trend declining over the CPF period. TFP growth was very high during the growth acceleration in the
first decade of the 2000s, but it has declined significantly over the past five years. This was not
surprising, and the SCD found that this was primarily due to a natural decline in TFP growth after the
earlier period of rapid growth. A rising working-age population provides some growth impetus, but is
insufficient to counter the overall decline of GDP (over the period 2005 to 2013, thirteen percent of

8
For example, the ICT Development Index of the International Telecommunications Union ranks Ethiopia as
162nd out of 166 countries in 2016 (34th out of 38 SSA countries), the Network Readiness Index of the World
Economic Forum ranks Ethiopia as 130th out of 143 countries in 2015 (24th out of 32 SSA countries), and the web
index of the World Wide Web Foundation ranks Ethiopia as 86th out of 86 countries in 2014 (21st out of 21 SSA
countries).

9
per capita growth was attributed to the demographic effect). As a consequence, the focus of this CPF
is on productivity-enhancing activities, which are projected to add momentum to a renewed trend
increase in TFP growth – albeit slowly – over the CPF period.

Figure 3: Potential Output and Factor Productivity Growth, percent

25

Projection

20

Capital stock
15

Potential GDP
10

5
Working age population

TFP
0

Source: World Bank staff calculations based on World Bank MFMod Economic Model.

24. A large external trade deficit contributed to Ethiopia’s historical current account deficit. Since
2014, the deficit has deteriorated further on account of weak export performance associated with the
collapse of the global commodities prices (especially primary commodities), an unfavorable global
economic environment from main trading partners (notably China), and the appreciated real effective
exchange rate. The low manufacturing base of the economy was unable to compensate for changing
commodity prices of overall exports. At the same time, imports continued to increase as the demand
for large infrastructure investments remains strong. Debt-financed capital-goods imports for public
infrastructure investment contributed to the widening of the trade balance. The current account
deficit is expected to continue to improve slightly, to reach –6.8 percent of GDP in 2021.

Sustainability of infrastructure financing

25. The current infrastructure-financing model poses a risk to development outcomes. In

Ethiopia’s financial sector, domestic credit is a rationed resource allocated to competing uses.
Directing the bulk of domestic banking sector credit to the rapid expansion of publically provided
infrastructure and basic services led to a rapid accumulation of public external debt. To sustain high
growth rates, analytical work prepared by the WBG suggests that Ethiopia needs to identify
sustainable ways to finance infrastructure9. This can be achieved, for instance, by supporting private

9
http://documents.worldbank.org/curated/en/693561467988949839/pdf/99399-REVISED-PUBLIC-thiopia-
Economic-Update-2-11-16-web.pdf

10
investment through credit markets and by raising domestic revenues. While total revenue (including
grants) increased significantly in absolute values over the past decade, the tax elasticity was below 1,
resulting in a decline in general government revenue and grants from 21 percent of GDP in 2003/04
to 15.1 percent in 2014/15. The tax-to-GDP ratio in 2014/15 was only 13.4 percent, which puts
Ethiopia in the lowest third of SSA countries.

26. Additional resources could be raised through domestic savings mobilization and the eventual
establishment of capital markets. While domestic savings have increased as a share of GDP in
Ethiopia, the country has experienced a decline in the credit to GDP ratio, suggesting that increased
savings are not always entering the formal banking system and/or are going into the booming real
estate market. The Government has actively sought to raise domestic savings through measures,
among others, such as expansion of bank branches. Indeed, bank branch expansions have had a
demonstrable effect on domestic savings in the formal banking system. However, as shown in the
same analysis, a key determinant of domestic savings is the real deposit interest rate. Since this rate
is currently negative, households have strong incentives to channel monetary savings into informal
savings mechanisms. A negative real interest rate is also a major obstacle to the development of a
secondary market for treasury bills, as institutional investors would not earn a sufficient return for
voluntary purchase of such assets.

27. Analysis suggests that the absence of a functioning capital market may become a binding
constraint for growth and development as the country progresses. Since there are substantial needs
for long-term financing in local currency by both the public and private sectors, a well-functioning
capital market (particularly the bond market) is essential to the long-term development of the
Ethiopian economy. The current market is characterized solely by short-term treasury instruments of
up to one year, the tenor of which does not match the long-term character of the actual investments.
In addition, the money market is not functioning with virtually no existing inter-bank lending.
However, there is an active informal market for equities, particularly for bank and insurance stocks,
which in turn indicates that there is demand for services of a typical capital market. Failure to establish
such a market may mean that future projects could not be financed in an ever-more developed
economy. The evolution of this viable capital market will take time, and a comprehensive but targeted
approach is required given its current nascent state.

28. The general government fiscal stance remains prudent. The general government fiscal deficit
(excluding SOEs, which are used as a vehicle to pursue public investment and have been a large taker
of public external debt in recent years) was modest at 2.4 percent in 2015/16, similar to the preceding
year despite increased spending for drought-affected areas. Increased revenue collection, mainly from
non-tax sources, compensated for the increase in total expenditures and helped to contain the fiscal
deficit. The fiscal deficit (including grants) improved from 5.8 percent of GDP in 2002 (following major
drought) to 1.2 percent of GDP in 2012. It has since begun to relax again on account of new pressures
arising from the cost of drought relief and public salary adjustments. With continuing increases in
domestic resource mobilization, the general government fiscal deficit is expected to decline to -1
percent of GDP in 2021.

11
 Table 1: Selected Economic Indicators
Average
Fiscal year ending July 7 2012 2013 2014 2015 2016 2017f 2018fd 2019f 2020f 2021f
2006-2016
Income and Economic Growth
GDP growth at factor cost (annual %) 9.4 8.7 9.8 10.3 10.2 8.0 8.3 8.0 7.9 8.0 8.0
GDP per capita (US$) 433 472 506 575 649 711 770 832 903 982 1,068
Prices
Inflation, consumer prices (annual %, end of year) 10.9 20.8 7.4 8.5 10.4 7.5 8.0 8.0 8.0 8.0 8.0
Inflation, consumer prices (annual %, period average) 14.8 34.7 13.9 8.1 7.7 9.7 7.4 8.3 8.4 8.5 8.5
Fiscal
Revenue (% of GDP) 16.2 15.5 15.8 14.9 15.4 16.0 16.3 16.4 16.6 16.9 17.0
Expenditure (% of GDP) 17.8 16.6 17.8 17.7 18.6 18.4 19.2 19.5 19.6 19.7 19.8
Debt service (% of GDP) 0.5 0.3 0.3 0.4 0.4 0.5 0.5 0.5 0.6 0.5 0.5
Fiscal balance including grant (% of GDP) -2.3 -1.2 -1.9 -2.6 -2.4 -2.4 -2.8 -3.1 -3.0 -2.9 -2.8
Fiscal balance excluding grant (% of GDP) -4.9 -2.9 -3.5 -3.7 -3.4 -3.2
Primary fiscal balance including grants (% of GDP) * -1.9 -0.9 -1.6 -2.2 -2.0 -1.9 -2.3 -2.5 -2.5 -2.4 -2.3
Total public debt (% of GDP) 43.8 32.7 37.4 45.7 55.3 54.2 55.6 56.4 55.9 54.5 53.1
External public debt (% of GDP) 23.4 17.9 20.5 25.2 31.0 30.2 30.0 30.3 29.4 28.2 27.0
External Accounts
Export growth (%, yoy) 12.8 14.8 -2.3 5.7 -8.5 -3.7 3.4 10.8 12.0 6.0 4.5
Import growth (%, yoy) 15.6 34.0 3.7 19.7 19.9 1.6 3.4 7.6 7.0 5.3 6.5
Merchandise exports (% of GDP) 6.0 7.3 6.5 5.9 4.6 4.0 3.7 3.7 3.7 3.8 3.9
Merchandise imports (% of GDP) 25.6 25.5 24.1 24.7 25.5 23.1 21.5 20.9 20.2 19.1 18.3
Services, net (% of GDP) 0.9 0.4 1.2 1.3 -0.1 -0.6 -0.5 -0.5 -0.4 -0.2 -0.1
Service exports (% of GDP) 6.1 6.5 6.0 5.7 4.8 4.1 3.8 3.8 3.8 3.9 3.9
Service imports (% of GDP) 5.3 6.1 4.8 4.4 4.8 4.7 4.4 4.3 4.4 4.5 4.5
Private transfers, net (BoP, % of GDP) 8.1 7.5 7.5 7.3 7.6 8.3 4.9 4.8 4.8 4.7 4.7
Current account balance before grant (BoP, % of GDP) -10.7 -10.6 -8.5 -10.6 -13.8 -11.9 -11.0 -10.4 -9.6 -9.3 -9.0
Current account balance after grant (BoP, % of GDP) -6.4 -6.5 -5.3 -7.9 -11.5 -10.4 -10.4 -9.7 -8.8 -7.8 -6.8
Foreign Direct Investment (% of GDP) 3.0 2.5 2.6 2.6 3.4 4.2 5.8 5.8 5.8 5.9 6.0
External debt, total (% of GDP) 23.4 17.9 20.5 25.2 31.0 30.2 30.0 30.3 29.4 28.2 27.0
Gross official reserves (months of imports) c 1.8 2.0 1.8 1.5 2.0 1.9 1.9 1.9 2.1 2.2 2.2
Poverty Rate
28.8a
Poverty headcount ratio at US$1.9/day, 2011 PPP terms, % of population) 32.4 29.6 28.3 27.1 26.4 25.6 24.8 24.1 . .
Inequality - Income Gini b 33.2 33.2 33.2 33.2 33.2 33.2 . . . . .
Others:
GDP (current LCU, billions) 1,080 739 853 1,047 1,231 1,528 1,782 2,070 2,413 2,817 3,292
Nominal GDP (current US$, billions) 56 43 47 54 64 72 80 89 99 110 122
Source: World Bank staff calculations based on World Bank MFMod Economic Model, GoE and International Monetary
Fund (IMF) data.
Note: a) calculations based on 2010-HICES; b) Most recent value 2010; c) National Bank of Ethiopia estimates; d) figures
for 2017 and 2018, from the Macro Poverty Outlook October 2016. Forecasts of poverty and inequality over the CPF
period are not reported. Those indicators rely on household survey data and new data has not been released since
2010/11. At the same time, recent shocks (drought conditions) increase the probability of estimation errors; this
uncertainty is higher than in the case of macro and fiscal data. Hence, no full poverty and inequality forecasts are
reported in the table.

Poverty and the Spatial Dimension of Shared Prosperity

29. Poverty rates in Ethiopia have declined from 55.3 percent in 2000 to 33.5 percent in 2011,
based on the measure of US$1.90 per day. The latest poverty and household living conditions survey
was conducted in 2015/16, and results are expected by mid-2017. While the strong economic growth
during the past five years would hint at a further reduction in poverty, this most recent survey was
undertaken amid the drought, which may result in a less favorable poverty trend. Life expectancy rose
from 52 to 65 years during the same period, and there were sizable improvements in many of the
human development indicators. Despite this progress, Ethiopia remains one of the world’s poorest
countries with a per capita income (GNI per capita) of US$660 in 2016, far lower than the SSA average
of US$1,646. In 2015, Ethiopia ranked 174th out of 188 in the Human Development Index (HDI).
Although there has been progress on non-monetary dimensions of well-being, as in any other country
those who have moved out of poverty remain vulnerable to falling back into poverty, and 14 percent
of non-poor rural households are vulnerable to falling into poverty.

Inclusiveness: Spatial dimension of prosperity

30. Although poverty rates have converged over time across regions, thereby reducing inter-
regional disparities, there are significant intra-regional and inter-woreda disparities. Poverty
reduction was driven primarily by agricultural growth and supported by public investments in basic
service provision and rural safety nets. Analysis shows that each 1 percent of growth in agricultural
output reduced poverty by 0.9 percent. The maps in Figures 4 illustrate the distribution and population

12
density, respectively, of the poorest 40 percent in Ethiopia. To illustrate: Oromia and Amhara, the
most densely populated regions in Ethiopia, have a greater proportion of woredas in which the share
of bottom 40 percent is higher than the national average.

31. The Ethiopian constitution has designated four historically underserved regions: Gambella,
Afar, Somali, and Benishangul-Gumuz. While Somali and Afar have very high rates of
multidimensional poverty, such rates in Gambella and Benishangul-Gumuz are lower than the
nationwide average. Expansion of basic services to these historically underserved regions has helped
to bridge development gaps. Per the spatial approach of this CPF, more focused efforts are needed to
ensure that all regions, including those that are underserved, receive the full range of quality services,
from health to education to water supply. The scope and objectives of the Enhancing Share Prosperity
through Equitable Services (ESPES) Project (P151432) are described in Box 3.

Figure 4: Spatial distribution of poverty

a: Distribution of the poorest 40 percent b: Density of the poorest 40 percent

Source: World Bank staff calculations and visualizations based on the 2011 HICES.

32. Overall inequality remains low in Ethiopia, as measured by the Gini coefficient of 0.3.
However, the spatial disparities in many indicators of wellbeing demonstrate that development
has not been fully inclusive. While Ethiopia remained one of the most equal countries in the world
during the period of high growth (2005-2014), consumption growth of the bottom 40 percent did not
match the consumption growth of the top 60 percent during this period. More significantly, the
bottom 10 percent experienced negative consumption growth, due in part to high food price
inflation.

33. Urban poverty in Ethiopia’s two largest cities is just as high as rural poverty, and is strongly
associated with unemployment. In Addis Ababa and Dire Dawa, poverty rates are nearly 30 percent,
with unemployment in Addis Ababa around 24 percent. There has also been a drop in real wages,
which has further contributed to poverty. Elderly, disabled and female-headed households are more
vulnerable to poverty in urban areas (World Bank 2015a). Urban safety net mechanisms to improve
incomes of poor urban households and access to livelihood opportunities could help address urban
poverty challenges in Addis Ababa and in urban centers across Ethiopia. Simulations show that a
modestly-sized urban safety net can halve urban poverty and encourage income growth among
recipients by increasing the productivity of the self-employed and encouraging some self-employed
to graduate from self-employment to wage employment.

13
 Box 3: Enhancing Shared Prosperity through Equitable Services (ESPES) Project
The ESPES Program-for-Results (PforR) supports decentralized basic services at the woreda level (the third
level of Ethiopia’s federal system). The nearly one thousand woredas (equivalent to districts) in Ethiopia are
responsible for primary and some secondary education and health care, agriculture extension services, as
well as rural water supply management and rural road maintenance. Education, health and agriculture
extension services account for 95 percent of woreda-level spending which primarily covers the cost of staff
salaries, such as for teachers. Woredas recruit and manage staff according to national guidelines.

To help strengthen the decentralized service delivery system, ESPES also supports improved governance at
the woreda and regional level, better fiduciary and safeguards management, as well as citizen engagement
in service delivery, budgeting and planning. By contributing approximately 8 percent to the woreda block
grants, ESPES resources leverage these good governance practices over resources twelve times the IDA
contribution.

ESPES uses its role in support of improved service delivery to also address gender gaps and sub-regional
disparities in human development and access to services. For example, the program includes a Disbursement
Linked Indicator (DLI) that requires an increased proportion of female agriculture extension workers, as
analytical work by WBG and IFPRI finds that male extension workers are not having a sufficiently positive
impact on female farmers. Another DLI requires an increase in girls’ enrollment rates in lagging regions, and
a third DLI calls for increasing the proportion of health extension works with level 4 (midwife-equivalent)
qualifications. This latter DLI seeks to address the persistently high rate of maternal mortality in Ethiopia.

Moreover, by working at the decentralized service delivery level, ESPES also has the ability to tackle cross-
sectoral issues. For instance, it will include a DLI related to improving nutritional outcomes in food-insecure
woredas. It also monitors the access of schools and health facilities to utilities such as water, toilets and
electricity.

34. Road access is a key determinant of poverty. Poverty rates increase by 7 percent for every 10
kilometers’ distance from a market town. Poverty reduction from agricultural growth displays similar
patterns, as poverty reduction is higher for people close to urban centers (26 percent) than those
living in rural areas (4 percent). This further illustrates the role of spatial connectivity in poverty
reduction: travel times to urban centers are an important variable in reducing poverty.

35. Distance from urban centers is an important predictor of poverty and the 2016 rural access
index (RAI) for Ethiopia is very low at 21.6. The maps in Figure 5 show the changes in road density
between 2006 and 2016 and the RAI, respectively. The national road network of Ethiopia expanded
from 26,500 km in 1997 to 100,000 km in 2015 (SCD 2016), but road density (1 km per 1,000 people)
is very low compared to African peers. Changes in road density have not been homogenous across the
country, which has implications for labor mobility, market access, and income growth for farmers.

36. Gender inequality is high in Ethiopia and women remain more vulnerable to risks due to
cultural norms and their socio-economic status (Box 4).10 Gender gaps in secondary school
enrollment and learning outcomes suggest that traditional girls’ roles in undertaking domestic chores
are often valued more highly than education. The maternal mortality ratio remains alarmingly high at
420 per 100,000. Gender productivity gaps in agriculture are among the highest in SSA: productivity
for female farm managers is 23 percent lower than their male counterparts due, in part, to lower
access to land, extension services, credit and inputs such as fertilizer. Access to cooperative leadership
and participation is another contributor: for example, only about 20 percent of female farmers hold
cooperative membership. Similarly, gaps exist in almost all stages of the agribusiness value chains

10
Per World Bank Operations Policy (OP)/ Bank Policy (BP) 4.20, this CPF is informed by a range of gender
diagnostic work, including a 2015 Norad gender assessment of Ethiopia, the gender analysis that preceded the
SCD, and the significant gender analysis included in the Ethiopia Poverty Assessment.

14
 Figure 5: Road density and rural access
a: Changes in road density and length, 2006 to 2016 b: Rural Access Index (RAI) and major roads, 2016

Source: World Bank visualization based on data from Source: World Bank visualization based on data
various UN agencies. RAI (World Bank).

(post-harvest, processing and storage, transportation, and marketing and sales11). In urban areas,
women have lower rates of employment, often facing discrimination for certain types of jobs deemed
not suitable for women. Those women who do work are more likely to be employed in less-skilled,
informal, low-paying jobs, often working for family members. Ethiopia has higher rates of gender-
based violence than the SSA average, and high rates of female genital mutilation (FGM). According to
the 2016 Ethiopia Demographic and Health Survey (DHS), 62 percent of women age 15-49 nationwide
have been circumcised, though that figure ranges from 24 percent to 98.5 percent depending on the
region, level of education, and wealth quintile. Although FGM is illegal in Ethiopia, criminal
prosecutions are extremely rare.

11
Investing in Women Along Agribusiness Value Chains, IFC, October 2016.

15
 Box 4: Gender in the Ethiopia CPF

Ethiopia’s GTP II and the World Bank Group’s Systematic Country Diagnostic (SCD) highlight the key gender-related
constraints to boosting productivity and women’s contribution to growth. GTP II lays out a bold agenda for women’s
empowerment and participation. For example ambitious targets are set in the areas of women-owned SMEs (4.13
million women will own SMEs by the end of GTP II), access to credit (2.24 million women), participation in agricultural
activities (doubling female participation), land use (all female-headed households will have land-use rights), access to
training for vulnerable women (36,000 vulnerable women in 30 woredas), access to education (gender equality at all
levels of education), and female participation in legislative and executive bodies and the judiciary system.
Gender was a prominent feature of the FY13-FY16 CPS for Ethiopia (ET-71884), with over 90 percent of projects rated
as fully gender-informed. There will be an even deeper integration of gender in this FY18-FY22 CPF for Ethiopia.12 This
will be achieved by: (1) the application of a Gender Filter to all new operations (an overview of the proposed Gender
Filter is presented in Annex 11); (2) greater inclusion of gender-disaggregated outcome indicators in the CPF results
matrix (which was identified as a shortcoming in the most recent CPS); and (3) partnering with the Africa Gender
Innovation Lab (GIL) to identify and scale-up interventions that show the greatest promise for improving outcomes
related to gender.
To maximize the impact of WBG work in support of the GoE’s agenda, interventions to address gender in this CPF are
as follows:
 To maximize women’s contribution as entrepreneurs, farmers, and employees, interventions will focus on:
increasing the earnings and employment of women-owned enterprises, via access to loans and business training
(WEDP - see Figure 6); closing the gender gap in agricultural productivity by designing extension services that are
better tailored to women farmers’ needs and improving their access to irrigation and best practice
techniques/technologies (AGP2; ESPES); promoting women’s increased participation in the labor market by
supporting sectors/jobs that women already dominate (e.g., industrial park jobs via the Competitiveness & Job
Creation Project (CJCP) (P143302), as well as by promoting women’s participation in traditionally male-dominated
sectors/jobs (Ethiopia Trade Logistics Project (ETLP) (599466); National Quality Infrastructure Development
Project (NQIDP) (P160279)); and ensuring that women are able to participate in public works employment with
reduced hours, ‘light’ works, and the provision of child care (Productive Safety Nets Project 4 (PSNP4) (P146883);
Urban Productive Safety Nets Project (UPSNP) (P151712)).
 To maximize the impact of interventions aimed to building the human capital necessary for a more productive
economy in the future, interventions will focus on: promoting gender equality in education by creating an
environment that is conducive to female students (GEQIP II and ESPES); improving maternal health outcomes by
addressing supply-side bottlenecks through investments in human resources and equipment (HMDGSO and
ESPES), demand-side gaps through communications campaigns targeted to women (UPSNP and ESPES) and soft
conditionality for use of health services (PSNP4); and improving access to safety nets for poor women in both
rural (PSNP4) and urban (UPSNP) areas.
 To build women’s agency, and enable them to more fully participate at all levels of decision-making, interventions
will focus on: strengthening women’s agency in social accountability mechanisms via quotas for women’s
participation in projects, capacity building for women and women’s groups, and encouraging women’s
participation in woreda pre-budget discussions (ESPES); and addressing gender-based violence (GBV) as a key risk
within non-GBV specific projects by applying the Gender Filter.13 Given the prevalence of GBV in Ethiopia, and the
negative impact of GBV on project and development outcomes, the CPF will address GBV as a key risk within non-
GBV-specific projects. This will be implemented through the Gender Filter (see Annex 11).
To further refine the approach to gender in Ethiopia, the World Bank’s Africa Gender Innovation Lab will be partnering
with the country team to establish an Ethiopia Gender Innovation Lab. To lay the foundation for this collaboration, the
GIL will, in collaboration with the Government, produce a white paper on gender issues in Ethiopia. This white paper
will synthesize the existing body of evidence on gender-related constraints to women’s economic participation and
contributions to growth, identify promising policy levers to address these constraints, and highlight the most pressing
knowledge gaps. Following this initial diagnostic process, the GIL, in partnership with governmental and other
organizations, will seek to develop and test promising interventions and policies via rigorous impact evaluations.

12
This approach is consistent with the emphasis placed on a more coherent and results-focused approach in the
World Bank 2016-2023 Gender Strategy, and the new Gender CCSA methodology for rating gender in operations
(the so-called “Gender Tag”).
13
As other development partners have greater expertise and are already active in the area of GBV in Ethiopia,
the World Bank does not have plans for any stand-alone operations focusing on GBV.

16
Figure 6: Women Entrepreneurship Development Project (WEDP)

37. Fertility rates have fallen

while life expectancy has continued to
rise. The current fertility rate -- 4.6
children per woman (DHS, 2016) – is down
from approximately 7 children per woman
from the 1950s to mid-1990s. Life
expectancy has increased from 35 years in
the 1950s to 65 years, and is projected to
reach 75 years by the 2050s. Population
growth rates, down from 3.1 percent
between 1985-1990, to 2.5 percent in the
current period, are projected to reach 1.3
percent by 2045-2050. To accelerate this
demographic transition, women need
greater access to family planning services,
education, and employment opportuni-
ties. For example, the DHS indicates that
the coverage of modern contraceptives
among the highest-wealth quintile is twice
as high as that of the lowest quintile (45.7
vs. 21.9 percent). To illustrate regional
differences, the current use of contra-
ception in Addis Ababa is 50.1 percent,
while in the Somali Region it is 1.5
percent. Furthermore, rates of adolescent
and maternal undernutrition in Ethiopia
are high: an estimated 36 percent of
adolescents and 27 percent of women of
reproductive age (15-49 years) are
undernourished. Food insecurity and
undernutrition in adolescents and
pregnant women, compounded by gender
inequality, create an intergenerational
cycle of stillbirth, miscarriage, low birth
weight, stunting, impaired cognitive
development and, as adults, suboptimal
productivity.

38. Although Ethiopia made significant

progress toward achieving the MDGs,
with improvements in primary school enrollment (quadrupled), child mortality (halved), and access
to clean water (more than doubled), challenges remain. Access to education has increased (between
2011 and 2015, primary enrolment increased by 2.5 million students, to nearly 19 million students by
2016), yet net rates of primary attendance (65 percent) and completion (below 50 percent) are low.
There is room for improvement in learning outcomes and quality of education, where there are also
regional and gender disparities in basic proficiency. Similarly, despite progress toward the MDG on
undernourishment (stunting rates fell from 58 percent to 38 percent between 2000 and 2016), the
prevalence of stunting remains alarmingly high and there are significant spatial disparities both within
and between regions, as depicted in the map in Figure 7.

17
 Figure 7: Spatial dimensions of malnutrition

Source: World Bank visualization based on DHS data (2014).

Drivers of Poverty Reduction and Development Challenges

Building resilience

39. Despite significant progress in natural resource management in the face of climate shocks,
further building resilience is an urgent challenge in Ethiopia. Ethiopia has been a leader in
incorporating climate change and resilience into its development strategy. The Climate Resilient Green
Economy (CRGE) Strategy presents a vision for a low-carbon, resilient economy which features
strongly in the GTP II. The CRGE Strategy covers eight sectors including energy, water, urbanization,
and industrialization. As the severity and frequency of droughts continue to increase, building
resilience and expanding market access for farmers is critical to strengthening agricultural and rural
livelihoods for the bottom 40 percent. While risks arise from volatility in seasonal rainfall, recent gains
in sustainable land management practices have helped to reduce vulnerability to climate shocks. That
said, building resilience remains an urgent task at hand. The future of managing these climate shocks
will be rooted in national programs and line ministries as they build their capacity to respond to longer-
term needs as well as acute events.

40. A similarly urgent aspect of boosting resilience is the need to focus on the early years of child
development – progress is needed in improving health, learning, skills, labor productivity and
overall quality of life. The first thousand days from conception shape a child’s future in terms of
physical and mental abilities. Childhood stunting and early learning are critical challenges in Ethiopia,
due in part to micronutrient deficiencies, lack of dietary diversity and inadequate child feeding
practices, particularly low rates of exclusive breastfeeding and complementary foods. High disease
burdens such as acute respiratory infections, malaria, and diarrhea, exacerbated by lack of access to
clean water and sanitation, further compound the problem. Mothers are also often underweight and
poorly nourished, due to both lack of access to nutritious food and lack of knowledge and demand.

Overcoming spatial inequality and fostering inclusiveness

41. In order to strengthen livelihoods for the bottom 40 percent, Ethiopia needs to build on
national systems that can support sustained improvements in human development indicators.
Providing basic services across the country, in nationwide programs, can lay the foundation for vibrant
centers of economic activity across all regions. Currently, GoE allocates approximately one-third of
government expenditures to health and education. National programs will need to identify and
address pockets of extreme poverty and poorly performing areas, and emphasize quality service
delivery in those areas.

18
42. Access to land remains a critical constraint at all levels. In order for Ethiopia to sustain its rapid
growth trajectory of the past decade, it must make optimal use of all of its factors of production,
particularly through continued reforms in land markets and land certification. This process is among
other efforts being supported under the WBG-financed Second Sustainable Land Management Project
(SLMP II). As of the Project Mid-term Review in December 2016, more than 260,000 households (of
which approximately 28 percent were female-headed households) received second-level (geo-
referenced) landholding certificates. In addition, 1,598 landless youth (41 percent of whom are
women) were issued land certificates giving them use rights over degraded communal land in
exchange for rehabilitating the land to use for income-generating activities.

43. Local land management approaches have created tensions and localized conflict. If current
practices and approaches remain unchanged the full attainment of development results will be
threatened. The risk of such tensions has been recognized at the national level but localized problems
continue. Land use and management must be addressed in urban settings as well, where weak urban
planning and land management are a binding constraint to improved productivity, higher-paying jobs,
and overall welfare gains.

44. Expansion of urban safety nets could help to make the urbanization process more inclusive.
The poverty rate in urban Ethiopia is almost as high as the rural poverty rate. Those who are unable
to work—the elderly and disabled—live in similar or poorer conditions than their counterparts in rural
areas. They are less likely to access a loan or gift from relatives when needed, reflecting weaker social
structures, and they receive no public safety net transfers, which are exclusively focused on rural
areas. As urban areas grow, the need to strengthen urban safety nets will become an increasing
priority to address poverty and vulnerability.

Productivity and Employment

45. To advance the pace of structural and economic transformation, the role of the private sector
in the Ethiopian economy needs to be strengthened by addressing challenges around productivity,
competitiveness, and the sustainability of infrastructure financing. Structural reforms will be
important so that both economic and structural transformation can be achieved. A more vibrant
private sector is key for job creation and sustained growth. Limited credit for private investment is a
binding constraint for potentially productive and competitive firms, particularly to domestic firm
growth. Other constraints to firm competitiveness include: efficiency of trade logistics; access to
inputs; tax administration; regulatory predictability, quality, and burden; competitive exchange rate,
land, and burdensome entry requirements.

46. Job creation is a growing challenge -- particularly creating private sector jobs -- given the rapid
shift in the age structure of Ethiopian population. Ethiopia’s demographic transition has been more
rapid than elsewhere in the continent as fertility rates fell from seven children per woman in 1995 to
4.6 in 2016. The working-age population remained constant at around 50-51 percent from 1985-2010
and is projected to peak at 67.5 percent in 2055, as illustrated in Figure 8. While this demographic
transition can reap huge benefits for enhanced growth, it also poses the daunting challenge of finding
employment for new entrants into the labor market. Ethiopia’s labor force is projected to grow by two
million a year over the coming 10 years, while the number of young workers (age 15-29) will increase
by 8.5 million by 2025. Persistently low education levels of rural youth (in 2013, 84 percent of rural
youth had not completed primary school), combined with increasing sizable gender gaps (employment
ratio for women age 15+ is 72 percent, versus 86 percent for men), and increasing land shortages,
make it increasingly challenging to productively employ a rapidly growing and largely unskilled youth
population.

19
 Figure 8: Population Pyramid: 2015 and 2050

Source: United Nations, Department of Economic and Social Affairs, Population Division (2015),
World Population Prospects: The 2015 Revision.

47. Urbanization in Ethiopia is on the rise, but has only been associated with a limited shift in the
employment structure. The share of agriculture in total employment decreased by four percentage
points between 2005 and 2013, while that of services (including agricultural extension services) rose
by a single (one) percentage point in the same period. The urban share of Ethiopia’s population
(estimated at only 17 percent in 2012) is one of the lowest in the world, well below the SSA average
of 37 percent. The annual rate of urbanization is projected to average 5.4 percent over the coming
decade, with 30 percent of Ethiopians living in urban areas by 2028, and a tripling of the urban
population by 2034. Urban population growth has the potential to shift the structure and location of
economic activity from rural agriculture to larger and more diversified urban industrial and service
sectors. Cities, and especially Addis Ababa, already play an important role in the economy,
contributing 38 percent of GDP while employing only 15 percent of the total workforce, reflecting the
high productivity (and higher levels of required education and skills) associated with sectors located
mostly in urban areas. Greater attention to urban resilience and secondary cities is needed to create
attractive employment opportunities for rural migrants, and market access for farmers. This is
important to relieve the pressure on overstretched cities such as Dire Dawa and Addis Ababa.

Increasing competitiveness

48. Limited access to credit for private investment reflects low levels of financial inclusion and
poses an additional constraint to boosting productivity and rural livelihoods. Overall access to
financial services remains highly limited across Ethiopia. According to the 2017 Living Standards
Measurement Study (LSMS), the proportion of adults with a bank account is 54 percent in urban areas,
38 percent in small towns, and 11 percent in rural areas. Limited access to credit constrains
investments in non-agricultural activities, and constrains agricultural investments for some
households as well. Low access is explained by: 1) underdeveloped financial (and other) infrastructure;
2) inadequate supply of a range of suitable financial products; 3) inadequate financial consumer
protection; and 4) low levels of financial capability and awareness. Similar constraints exist at the firm
level, where limited access to credit constrains the growth of firms that would otherwise have the
potential to unlock economic benefits. Facilitating domestic savings mobilization and preparing for
the eventual establishment of capital markets in Ethiopia, by laying the institutional groundwork and
realizing a positive real interest rate, would help Ethiopia build a foundation for private credit to
flourish and establish market mechanisms that maximize highest returns.

20
49. Entry barriers to starting a business, including access to reliable energy supplies, trade logistics
and an overvalued real exchange rate, impede competitiveness and limit growth and employment.
Burdensome regulations, regulatory uncertainty and risk, insecure property rights, and access to land
are critical constraints. Ethiopia scores poorly on the ‘Starting a Business’ indicator at 179th out of 190
economies (WBG Doing Business Report, 2017). Complex licensing and permitting procedures,
transaction costs of dealing with government agencies, and broader issues of regulatory quality are
rated as being burdensome as well.

50. Energy access is a key challenge for households and firms. Ethiopia is one of the world’s
cleanest energy producers with 97 percent of its energy generated through hydropower. Ethiopia has
also improved energy coverage through the grid, which is high with 60 percent of towns and villages
covered. However, Ethiopia has the second highest energy deficit, in terms of household connections,
in SSA with an on-grid access rate of 15 percent and an off-grid access rate of 10 percent. Limited
access to reliable energy hinders firm performance and growth as well.

51. Inefficiencies in trade logistics represent a major challenge to enhancing competitiveness,

especially in light manufacturing. To illustrate, it has been calculated that for a 20-foot container of
garment exports to Germany, Ethiopia’s logistics costs are 247 percent higher than those of Vietnam
and 72 percent higher than those of Bangladesh. Inefficiencies in the logistics sector result in high
overhead costs for manufacturers, constrain the use of imported inputs, and prevent manufacturing
firms from operating at full capacity. High journey times, which undermine participation in global (and
internal) value chains, impose high costs on small firms and undermine agricultural supply chains.
When judged by its performance in the “Trading across Borders” indicators (Doing Business, 2017),
Ethiopia is ranked 167th out of 190 economies. On the Logistics Performance Index, which captures
the perception of freight forwarders, Ethiopia was ranked 126th in 2016, a deterioration compared to
their ranking of 104th in 2014. The Government acknowledges the challenges it faces in this area and
has begun taking steps towards improving the sector.

52. Ethiopia’s strong real exchange rate hinders exports, structural change, and threatens the
external balance. Modeling estimates offer various projections as to the potential impact of a
devaluation. One such model estimates that in Ethiopia, a one-percent devaluation of the real
exchange rate is estimated to boost exports by ½ percent, with larger effects in manufacturing (1
percent) than in agriculture (1/3 percent). Implementing a lower exchange rate would require an
appropriate monetary and fiscal framework and represents trade-offs with respect to the local
currency value of public capital imports and external debt (Haile 2015). Other macroeconomic effects,
for example on inflation, need to be managed closely as well.

Sustainability of the financing model

53. Alternative financing options are needed to make the infrastructure financing model
sustainable. The past infrastructure expansion was financed via a range of mechanisms that will begin
to show their limits in terms of external debt sustainability and private sector crowding out in the
credit and forex allocations. While Ethiopia will continue to need more infrastructure, new
mechanisms to finance it are needed. There is a range of alternative financing mechanisms and some
options are consistent with current government strategy and thinking. This includes raising tax
revenues, increased private sector involvement (including Public Private Partnerships (PPP)), greater
selectivity and prioritization of investments, and improved public investment management.

21
 Box 5: Leveraging Private Participation in Energy

Background: Ethiopia achieved success in developing their energy infrastructure over the past decade using only
public-financed and public-executed approaches. The country is endowed with vast renewable energy potential
in hydro, solar, wind, and geothermal power. Ethiopia’s clean energy generation capacity (mostly hydropower)
has already reached 4,256 megawatts (MW) (second-highest in SSA). Going forward, as structural reforms are
necessary to ensure the long-term technical and financial sustainability of the sector, Ethiopia seeks to invite
private sector participation in the power generation segment (as independent power producers (IPPs)) and to
bring in private sector capital and sustainable financing structures, augment technical know-how, and to help
improve the implementation speed of the energy sector.

World Bank Group Response: The WBG has been providing comprehensive policy advice and technical support to
the ongoing reform program through a ‘Joint Implementation Plan’ (JIP) to coordinate support and provide a ‘one-
stop-shop’ solution combining knowledge, expertise, financing, and guarantees. WBG support includes
International Development Association’s (IDA) multifaceted advisory assistance for: policy enactment as well as
legal and regulatory reform (‘PPP Proclamation’ and IPP legal framework development), planned capacity
development for the IPP teams, and continued technical assistance for utility reform and long-term financial
sustainability of the sector. WBG is also supporting IPP transaction pipeline development - IFC has signed an
agreement (transaction and financial advisory services) to develop up to 500 MW of solar IPPs (‘Scaling Solar
Initiative’). The GoE has also requested mobilization of IDA guarantees (up to US$200 million) to support the front-
runner IPP transactions (Scaling Solar and other IPP transactions) by providing credit enhancement and risk
mitigation instruments, and is expected to leverage up to US$1 billion in new private sector financing flows to the
energy sector.

Alignment with Cascade Approach: The ongoing Ethiopia energy sector reform program being supported by the
joint WBG team is fully aligned with the cascade approach by bringing about a complete shift in investment thesis
of energy infrastructure development: to transition from completely public-financed to private-financed projects
(see graphic below). Currently, the WBG is supporting mobilization of private sector financing using risk-mitigation
instruments, since non-government-guaranteed private sector financing is considered neither cost-effective nor
viable. The team is also supporting GoE agencies in conducting out longer-term reforms and improving the overall
energy sector investment climate through a combination of policy dialogue, technical assistance, as well as
targeted financing (PforR to support sector utilities under preparation). Moving forward, the Risk Mitigation
Facility of the IDA18 Private Sector Window (PSW) could possibly be leveraged to finance – on commercial basis
with some support from IDA – complex and transformational projects in renewable energy.

54. To this end the Ethiopia CPF provides a timely opportunity to implement the WBG “cascade
approach” to expand infrastructure financing options. This process of “cascading” WBG interventions
entails: engaging upstream with the authorities on policy dialogue and promoting regulatory reforms
that will enhance the investment climate; providing targeted advisory services and ASA in support of
developing PPP solutions; and structuring joint interventions in selected sectors where there are
prospects for client commitment. This approach will seek to make optimal use of scarce public funds
by helping to effect policy reforms that will crowd in private sector capital and create new markets. A
prerequisite for the latter is that WBG and government activities during the CPF period help to lower

22
the risk for private investment (“de-risking”). This “cascading” approach can potentially be applied
across a number of sectors, including agriculture, housing, health services, sanitation, and energy. As
one example, the alignment of the “cascade approach” to planned WBG support to the Ethiopian
Energy Sector is illustrated in Box 5 (above).

Governance and citizen engagement

55. Increasing the institutional capacity and responsiveness of the Government will be key in
supporting development goals. Although the current system features citizen engagement
mechanisms such as grievance redress and ombuds in some key state-run programs, there is a lack of
a culture of debate and dialogue with different stakeholders, the emergence of which will be crucial
to inclusive development and growth.

III. WORLD BANK GROUP COUNTRY PARTNERSHIP FRAMEWORK

A. Government’s Growth and Transformation Plan II

56. The CPF is aligned with the GoE’s Second Growth and Transformation Plan (GTP II). GTP II
covers the period 2015/16-2019/20 with the overall goal of attaining lower middle-income status
by 2025. It carries forward the vision of GTP I, which focused on higher agricultural output and public
investment-based, infrastructure-driven growth. GTP II also emphasizes the need to maintain high
rates of economic growth; ensuring a greater role for the private sector as an engine of growth,
particularly in light manufacturing; raising domestic revenues notably through taxation; identifying
alternative and sustainable ways to finance infrastructure; and strengthening governance. GTP II
elaborates four development objectives: (i) achieve an annual average real GDP growth rate of 11
percent within a stable macroeconomic environment; (ii) boost competitiveness of domestic
productive sectors in agricultural and manufacturing industries for greater structural transformation;
(iii) promote further public mobilization and organized participation for ownership of development
outcomes, and (iv) ensure a stable democratic developmental state. It further elaborates nine ‘Pillar
Strategies’ (Annex 3), many of which build on elements of GTP I.

57. Reforms which lead to better governance, greater accountability and transparency, and
improved financial management capacity will be critical during the CPF period. Successful execution
of GTP II will require stronger implementation capacity at all levels, along with improved program
management and oversight. The Government will need to address challenges it faced during
implementation of GTP I, notably limitations in project planning and management. Rent-seeking,
corruption, insufficient feedback mechanisms, and other governance challenges are recognized as
additional obstacles to successful implementation of GTP II, as described previously in Box 2.

B. WBG Country Partnership Framework FY18-FY22

Lessons from the FY13-FY16 Country Partnership Strategy (CPS)

58. The overall performance of the CPS program (FY13-16) is rated as Moderately Satisfactory (see
Completion and Learning Review (CLR) in Annex 2).14 This rating is an aggregate measure of progress
made toward achieving CPS outcomes. Results under Pillar 1 -- Fostering Competitiveness and
Employment -- were Moderately Satisfactory, reflecting effective support to objectives of
macroeconomic stability, increased competitiveness and productivity, delivery of infrastructure, and
regional integration. Results for Pillar 2 -- Enhanced Resilience and Reduced Vulnerabilities -- were

14
This report follows guidelines issued jointly by the Operations Policy and Country Services (OPCS) unit and
the Independent Evaluation (IEG) in December 2014 with respect to rating methodology and categories.

23
rated as Moderately Satisfactory, with exceptional impact noted in improved delivery of social
services, and social protection and risk management. Progress toward the Foundation – Good
Governance and State Building – was Moderately Satisfactory, reflecting outcomes in public service
performance management; enhanced space for citizen participation; and enhanced public financial
management, procurement, transparency, and accountability. To further clarify, these ratings reflect
the strategic objectives and indicators in the CPS Results Framework – some of which were overly
ambitious and subject to changing country circumstances over the course of the CPS period. The
ratings do not fully capture the impact of the WBG engagement in Ethiopia during the four-year
period, or the degree to which the World Bank is viewed as a trusted partner by Government and a
valued player within the community of development partners. As noted in the “Lessons Learned”
section of the CLR, the team acknowledges the shortcomings of the Results Framework; and that more
of a “mid-course correction” could have been made at the time of the CPS Progress Report (CPSPR) to
account for changing circumstances, limited progress towards indicators, and the need to incorporate
greater risk management and mitigation measures. These lessons are reflected in the CPF Results
Framework.

59. Operations and analytical work need to go hand-in-hand. The CAS Completion Report
recommended that the World Bank support improvements in service delivery, notably through use of
the PforR instrument. This guidance was applied through delivery of the Urban and Local Government
Development Project (ULGDP) (P101474), the Enhanced Shared Prosperity and Equitable Services
Project (ESPES) (P151432), and the Health MDG Project (P123531). More recently, the World Bank
provided valuable just-in-time analytical work to the GoE during the CPS period with great success.
The Economic Update series, “The Great Run” report, the SME Finance Report, the SCD, and the
Urbanization Review were each well-received by the GoE and helped to open the space for policy
dialogue – and IDA operations – in areas previously thought to be “off-limits” for engagement.

60. Linking lending and non-lending operations with CPS outcome indicators was applied to a
lesser extent. One of the key lessons of the CPS period is to avoid Strategic Objectives, Outcomes, and
Indicators that are beyond the scope of either the CPS or the World Bank’s control. This guidance is
being applied in the CPF Results Framework and the choice of indicators that are specific, measurable,
and time-bound.

61. The World Bank’s comparative advantage derives, in part, from its position as a technical
leader among development partners (DPs). WBG is seen as a trusted partner by GoE, and as a leader
in terms of lending and technical capacity. As a result, coordination with the community of DPs was
strong and effective during the CPS period, creating synergies that drew on the WBG’s strengths.

62. The WBG could have used the CPSPR to make more of a ‘mid-course correction’ and adjust
indicators in the Results Framework to better take account of changing circumstances and the
realism of achieving CPS objectives. Toward this end, a comprehensive Safeguards Review was
conducted in March/April 2017, which identified the two most pressing risks – non-compliance and
social risk – and recommended mitigation measures. A preliminary draft report of the Ethiopia
Safeguard Portfolio Review is expected by Fall 2017. A Country Portfolio Performance Review (CPPR),
to be conducted with GoE counterparts, is planned for September 2017 in Addis. There will also be
annual program reviews to take stock of progress, and the Program and Learning Review (PLR) will be
prepared mid-way through the CPF period.

63. Greater attention to identifying and mitigating risks to the WBG program is needed. The case
of the Inspection Panel findings on the Third Protection of Basic Services Project (PBS3) (P128891)
highlights the need for systematic assessment of risks to the CPF program and measures to mitigate
those risks. During the latter half of the CPS period, social unrest emerged in response to resettlement
disputes, land issues, and questions of voice and citizen engagement. More broadly, this has
highlighted the question of spatial disparities in resource allocation and economic opportunities,

24
which has significantly informed the focus of the CPF. The spatial lens of the CPF is intended to support
more inclusive growth and greater social inclusion.

Overview of WBG Strategy

64. The CPF addresses the challenges of forging a growth path that is more broadly inclusive.
Lending and non-lending interventions, structured around three focus areas and 15 objectives (see
Figure 9) will continue to leverage Ethiopia’s federal system, with its regional decision-making, as a
foundation to provide greater access to quality services to all woredas (district level). The CPF will
focus on (i) promoting structural and economic transformation through increased productivity; (ii)
increasing social inclusion (including gender equality) and resilience; and (iii) improving institutional
accountability and confronting corruption. As part of the focus on private sector-led growth, the CPF
will seek to support the emergence of a vibrant private sector. This latter focus area will entail deeper
engagement by IFC and MIGA during the CPF period. Within this context, IFC intends to play a critical
role in creating markets and crowding in capital to support private sector growth. The WBG could use
all the facilities (Risk Mitigation, Local Currency and Blended Finance) available in the IDA18 PSW to
potentially support transformational projects in agribusiness, manufacturing, services and
infrastructure. The objective is to foster sustainable inclusive growth through job creation and
economic transformation.

65. The CPF will continue to leverage Ethiopia’s federal system, with its regional decision-
making, for maximum development impact. Ethiopia’s federal system ensures decentralized
decision-making, with resource distribution to all the regions through a need-based formula. While
this formula might need adjustment, the federal system provides the foundation for governing and
service delivery. World Bank operations such as the ‘Protection of Basic Services’ and ‘Enhancing
Shared Prosperity Through Equitable Services’ Programs have built on this foundation to provide key
services to all woredas throughout the country. In addition, they have introduced social accountability
measures to ensure citizen voice and engagement. Moving forward, the CPF aims to strengthen social
accountability and citizen engagement components in all operations during the CPF period.

66. How is this CPF different? As described earlier in the CPF, this program is intended to support
a more spatially inclusive approach to development that leverages national programs to provide
quality services to all areas. It will also support greater investment in secondary cities and transport
corridors to create market access for farmers and employment opportunities. The CPF will emphasize
activities that boost productivity (as opposed to factor accumulation); increase private sector-led
growth and job creation (especially for youth); promote gender inclusion (including economic and
social gaps between men and women), land administration and resilience; increase service delivery
with a focus on quality; and strengthen governance, citizen engagement, and managing climate risks.
To achieve these CPF objectives, there will be continued close collaboration between the World Bank,
IFC and MIGA, and greater creativity in applying available WBG instruments. This will include into
ongoing and/or planned WBG operations critical private sector-related policy reforms. The cascade
approach, implemented by working together as one World Bank Group, can help to overcome
Ethiopia’s private sector challenges.

67. A CPF for maximum impact. The focus areas of the CPF are both cross-cutting and multi-
sectoral, with ambitious objectives and outcome indicators. Ethiopia’s indicative IDA18 allocation, on
the order of US$4.0-US$4.8 billion, provides the resources with which to have a significant impact on
the challenges of poverty, inequality, employment, and growth by the end of the CPF period. The
increased focus on outcomes, with highly ambitious targets, marks a departure from the past
input/output approach. To illustrate: in the energy sector, the aim is to double the number of people
with access to electricity (on- and off-grid) to 50 percent by the end of FY21; in education, the focus
will be on better learning outcomes for girls in grades 4 and 8 (at least achieving gender parity); the
aim is to boost the contraceptive prevalence rate of rural women from 32 to 45 percent; in agriculture,

25
the goal is to increase the proportion of cereal/pulses produced by female-headed households by 23
percent by 2020; travel time on upgraded roads will decrease by 56 percent, thereby accelerating
market access for farmers; up to 14 million people will be protected from food insecurity; stunting
prevalence in children aged 0-23 months will be reduced by 30 percent; the number of people with
access to improved water sources and basic sanitation will increase by one fifth and 43 percent,
respectively; and the area of reforested lands and the number of land-use certificates issued will
double. IFC intends – though it does not have an indicative envelope – to reach a program of at least
US$60 million in long-term finance commitments per year during the CPF period. This amount could
increase significantly if reforms are undertaken that would allow greater private sector participation.

68. Selectivity in the CPF is driven by the GTP II, the impact of the program on the binding
constraints to reduce extreme poverty and boost shared prosperity, the WBG comparative
advantage, and the potential to reduce spatial disparities. The CPF will make strategic choices within,
not among, the binding constraints as presented in the SCD to maximize the impact of the proposed
program. For example, in the education sector, the focus will be on basic education outcomes, while
higher education will not be addressed. Similarly, in the energy sector, the CPF will place greater
emphasis on narrowing the access gap, and less on additional power generation. Likewise, the CPF
infrastructure program will emphasize connectivity and access to markets. The CPF will address private
sector development and make use of the new PPP legal framework, which will be in effect for the first
time, to crowd in private investment where appropriate.

26
 Figure 9: CPF Framework
Figure 10: World Bank Portfolio by Woreda,
2017Figure 9: CPF Framework

Figure 9: CPF Framework

Figure 10: World Bank Portfolio by Woreda,

2017Figure 9: CPF Framework

Figure 9: CPF Framework

Figure 10: World Bank Portfolio by Woreda,

2017Figure 9: CPF Framework

Figure 9: CPF Framework

Figure 10: World Bank Portfolio by Woreda,

2017Figure 9: CPF Framework

Figure 9: CPF Framework

Figure 10: World Bank Portfolio by Woreda,

2017Figure 9: CPF Framework

Figure 9: CPF Framework

Figure 10: World Bank Portfolio by Woreda,

2017Figure 9: CPF Framework

Figure 9: CPF Framework

Figure 10: World Bank Portfolio by Woreda,

2017Figure 9: CPF Framework

Figure 9: CPF Framework

27
Figure 10: World Bank Portfolio by Woreda,
2017Figure 9: CPF Framework
69. Ethiopia has a very large World Bank Figure 10: World bank Portfolio by Woreda, 2017
legacy portfolio (US$7.9 billion), with 35
projects that are being carried over from
the CPS. As depicted in Figure 10, the
portfolio is geographically dispersed across
the country. The CPF builds on the existing
portfolio, but focuses on support for
national programs to facilitate the
emergence of regional growth centers and
smart secondary cities, and ensure greater
inclusiveness and resilience for the poorest
40 percent of the population. The total
number of operations in the Ethiopia
portfolio will stabilize at around 31
projects (not including regional
operations), but average project size will
increase from approximately US$250
million to between US$300 and US$350
million, offering efficiencies in terms of
project preparation and supervision.

70. Preparation of this CPF was informed by an extensive series of consultations. These
discussions spanned the full range of stakeholders including the GoE (at both the federal and regional
levels), development partners (DPs), civil society organizations, private sector representatives,
academics and think tanks. Consultations also included an on-line platform for anonymous comments
on the CPF. Many of the online comments referenced concerns surrounding governance, political
freedoms, equitable distribution of prosperity, land rights, education and skills, access to finance, and
economic competitiveness. This feedback is consistent with the strategic focus areas of the CPF. Youth
voices were invited through a July 2016 essay competition, “Blog4Dev”, entitled ‘How can Ethiopia
become a middle income country without leaving anyone behind?’. The consultations process and
findings are described in greater detail in Annex 12.

Focus Area 1: Promote Structural and Economic Transformation through Increased Productivity

71. Ethiopia’s success in achieving structural and economic transformation will depend on
sustaining the economic growth rates of the past decade by boosting productivity and
competitiveness and finding sustainable solutions for infrastructure financing. The SCD identified
several challenges in order for Ethiopia to achieve the Twin Goals: (i) create a more competitive private
sector by lowering regulatory barriers and boosting financial inclusion; (ii) increase access to reliable
energy; (iii) boost agricultural productivity and commercialization; (iv) increase connectivity and
improve urban planning and land management to help catalyze growth, job creation, and service
delivery; and (v) develop new financing mechanisms to bridge the infrastructure gap.

Promote Structural and Economic Transformation Through Increased Productivity

Objectives 1.1 Enhanced business and investment climate, notably access to finance for MSMEs
1.2 Increased access to reliable energy supply
1.3 Improved agricultural productivity and commercialization
1.4 Improved connectivity and enhanced regional growth and secondary cities
1.5 New approaches for sustainable infrastructure financing and debt management
adopted

72. Objective 1.1 Enhanced business and investment climate, notably access to finance for
MSMEs. Ethiopia’s private sector competitiveness is very low, ranking 159th out of 190 in the 2017

28
Doing Business Report. IFC and the World Bank will jointly support Ethiopia in slowly de-risking the
business environment to crowd in more private sector participation. Reducing regulatory barriers for
business investment and improving access to finance and access to land are priorities in the CPF. The
WBG will support industrial zones infrastructure and development and quality assurance services to
enterprises. The World Bank and IFC will also provide advisory services addressing business
environment issues in order to reduce legal and administrative barriers to local and foreign
investment, investor protection and transparency, particularly in key industries such as food and
beverages, tourism and garments. IFC will further pursue investments in these sectors. Part of the
World Bank’s advisory services will focus on promoting exchange rate policies that support export
competitiveness.

73. The World Bank will support Ethiopia in addressing the binding constraint of access to credit
for private investment and promoting financial inclusion. Both of these efforts will help overcome
critical constraints to MSME growth. The World Bank intends to provide additional lines of credit and
technical assistance to financial intermediaries through the Development Bank of Ethiopia, a state-
owned bank, and will focus on leveraging rural and urban safety net programs to expand access to
transaction accounts by the unbanked and support GoE implementation of the National Financial
Inclusion Strategy. The World Bank will also support financial intermediaries (i.e., commercial banks,
microfinance institutions, and leasing companies) to deploy novel lending techniques targeting SMEs,
including female-owned enterprises, and assist in building the required financial infrastructure.15
Because of the current regulatory framework, which significantly limits private participation in the
financial sector, past attempts by IFC to provide financing (in local and foreign currency) to local
financial institutions have not been successful. Going forward, the World Bank will support the
government to address those constraints facing private sector investments into the financial sector.
Should the resulting engagement lead to regulatory reform, IFC would be able to catalyze private
sector participation (with capital and innovation) using SME finance, leasing, trade lines, local and
foreign currency financing, and advisory services (covering environmental and social standards, and
risks management) to help unlock the significant potential expected in the financial sector to unleash
private sector development in Ethiopia. A special focus would be on MSMEs operating in supply/value
chains of global and large local players in sectors such as agribusiness and light manufacturing (inside
and outside industrial parks) with high potential for job creation. In addition, novel asset protection
techniques, such as basic insurance products for women, could be introduced in line with the IFC
Gender Strategy Implementation Plan to increase assets for women.

74. Objective 1.2 Increased access to reliable energy supply. Ethiopia is one of the cleanest energy
generation countries in the world (97 percent hydropower). While it has a grid network which already
reaches nearly 60 percent of the towns and villages (i.e., coverage for about 80 percent of the
population), Ethiopia also has the second-highest energy deficit in SSA (with on-grid access of about
15 percent, and off-grid access of about 10 percent). To address the situation, the World Bank is
assisting the Government in launching an ambitious National Electrification Program (NEP) (P160395)
which aims to achieve universal electrification by 2025. The World Bank is also preparing a PforR
operation (Ethiopia Electrification Program -- ELEAP) (P160395) to provide financing for
implementation of the NEP using a results-based financing mechanism to significantly scale up energy
access in the country. The operation, one of the first of its kind in the energy sector, would assist the

15
The World Bank is currently providing project support to state-owned banks in Ethiopia to facilitate access
to finance for SMEs. That is justified by the dominance of the developmental state in Ethiopia’s current
economic model. While not ideal, this gradual approach to policy dialogue and reform provides an immediate
path to address the access to finance constraints. However, there remains an urgent need for the government
to undertake immediate reforms to promote more private sector participation in the financial sector. The
World Bank’s project support will be accompanied by TA and other activities over the medium term to
incentivize an improved regulatory environment and facilitate greater private participation in production,
finance, and investment.

29
GoE in doubling the rate of access, reaching about 50 percent of the population in the program period.
Through the Energy JIP, the World Bank and IFC will work to improve the enabling environment for
private sector investments in the entire energy value chain. IFC, MIGA, and IDA will also support the
GoE to diversify energy sources and reduce reliance on hydropower by scaling up solar, wind and
geothermal generation capacity, notably through PPPs and through private investment. This will lead
to the creation of commercial markets for innovative and clean energy solutions such as solar lanterns
and kits. In coordination with IFC, the World Bank is introducing guarantees in the area of renewable
energy and will also support the GoE’s goal of expanding the geothermal energy sector geared towards
exporting energy to neighboring countries and increasing power sector revenues. IFC could also
potentially use the Risk Mitigation and Local Currency facilities of the IDA18 PSW to support high-
impact energy PPP projects that would otherwise be financed with public revenues.

75. Objective 1.3 Improved agricultural productivity and commercialization. Ethiopia’s poverty
reduction was driven in great part by agricultural expansion in rural areas, providing improved rural
livelihoods to more people. Agriculture will remain a key driver of poverty reduction, improved
nutritional outcomes, and inclusive growth in rural areas; and will also help meet rising food demand
in growing urban centers. Increasing the land under production can be addressed by reversing natural
resource degradation and rehabilitating degraded landscapes, which is supported under several IDA
projects (SLMP, PSNP and AGP). However, low productivity due to lack of modern inputs, lack of
market access for commercialization, inadequate irrigation and stark gender gaps in productivity are
added constraints in the sector. Climate change is also increasing vulnerabilities in the sector. IFC will
continue building its portfolio in agriculture and agro-processing to improve access of livestock (dairy,
poultry and meat processing) smallholder producers and processors to quality inputs and consider
new sectors such as sugar and/or forestry. IFC will also focus on strengthening the commercial
sourcing of some cereals (starting with barley and maize) and oilseeds. In addition, IFC will explore
opportunities for sustainable farmer financing solutions in the supply chains (pre- and post-harvest),
with an eye towards stimulating domestic value addition as well as revenue creation in rural areas.
Special focus will be given to tackling the constraints women face in the value chains. Opportunities
to use Local Currency Facility and Blended Facility of IDA18 PSW will be thoroughly explored. Several
gender-sensitive operations and ASA will support improved nation-wide public (extension) services
for crop and livestock producers, irrigation and drainage infrastructure, and development of value
chains and marketing services. The aim is to increase productivity, as measured in agricultural output,
by more than 20 percent.

76. Objective 1.4 Improved connectivity and enhanced regional growth and secondary cities.
Improved spatial connectivity is necessary for equitable growth by connecting production centers to
markets and connecting secondary cities. WBG will support improvements in transport infrastructure
and road connectivity to reduce travel times and enhance connectivity between markets and
secondary cities. The aim is to achieve more than 50 percent savings in travel time on roads upgraded
by World Bank-financed projects. The World Bank will also support the GoE’s capacity to construct and
operate strategic road corridors; and support policy, regulatory, and administrative reforms to
enhance the performance of the Ethiopia-Djibouti corridor. IFC will continue providing advisory
services to reduce export and import barriers, reforms which are expected to yield savings to the
private sector.

77. The World Bank will also provide results-based lending and knowledge services to further
enhance the capacity of local urban governments and assist in improved urban development. The
expected annual urbanization rate is 5.4 percent over the next decade, which presents an opportunity
to shift economic activity from rural agriculture to diversified urban industrial and service sectors.
However, this requires urban planning and land management (including enhanced urban resilience) -
- a binding constraint as identified in the SCD -- and local governments at the sub-regional level have
limited capacity and inadequate finances to fund urban development. The World Bank will support
GTP II priorities of an integrated national and regional urban planning and implementation program,

30
an integrated urban infrastructure and services delivery program, and an urban finance development
and management program. The World Bank will also continue to provide knowledge services in urban
housing and land management.

78. Objective 1.5 New approaches for sustainable infrastructure financing and debt management
adopted. Ethiopia needs more infrastructure and new mechanisms to finance it. The World Bank will
continue to provide technical assistance and lending following the WBG “cascade approach” to expand
infrastructure financing options. This approach aims to make optimal use of scarce public funds by
helping to effect policy reforms that will crowd in private sector financing and create new markets.
WBG and government activities in the CPF period, as a pre-requisite to attracting additional private
financing, will work to lower the risk for private investment (“de-risking”). With the PPP Framework
now established, WBG operations and non-lending activities will provide support in PPP/IPP financing
for infrastructure investment to help close the infrastructure gap. A key measure of success will be
the increase in the number of PPPs signed and increased investments. In addition, the World Bank will
provide intensified debt management support and continue its engagement on domestic revenue
mobilization and tax during the CPF period. Looking ahead and subject to upstream policy work in
coordination with the World Bank, IFC will provide support on PPP structuring and financing. It will
consider using all facilities available under the IDA18 PSW to mobilize financing for high-impact
projects that would not be otherwise funded on a commercial basis in energy (generation and
distribution), transport and logistics (railways, roads, airports), and industrial parks infrastructure. IFC
will also explore opportunities to deepen domestic private sector development, with local-content
projects, thus creating inclusive business opportunities.

Focus Area 2: Building Resilience and Inclusiveness

79. Ethiopia’s success in achieving further progress in reaching the twin goals will depend on the
capacity to further build resilience and inclusiveness. The Government and communities have made
progress in addressing resilience and inclusiveness through a series of measures. Notably, the
Government CRGE Strategy stresses climate-friendly initiatives such as reforestation, land
rehabilitation through bench terracing and other methods, and building and managing watersheds.
Another aspect of building resilience includes the large safety net program that transforms reliance
on humanitarian food assistance and promotes investments in human resilience through quality
health, water and sanitation services, and education outcomes. Despite these efforts, increasingly
frequent droughts are inflicting devastating human suffering. Moving forward the World Bank will
provide support to develop disaster risk financing strategies and options to assist the Government in
responding to acute need through their national developmental systems and programs. It is also
imperative to ensure quality of services and investments in the early years to maximize the learning
and earning potential of future generations. Finally, as Ethiopia is hosting more than 800,000 refugees
(with the numbers likely to rise), the World Bank plans to submit a request for support from the IDA18
Regional Sub-Window for Refugees.

Building Resilience and Inclusiveness

2.1 Improved sustainability and effectiveness of safety nets
2.2 Improved equity and utilization of quality health services
2.3 Increased access to improved water and sanitation
Objectives
2.4 Improved basic education learning outcomes
2.5 Improved early childhood nutrition and early learning outcomes
2.6 Increased access to services and job opportunities for refugees and host communities
2.7 Enhanced management of natural resources and climate risks

80. Objective 2.1 Improved sustainability and effectiveness of safety nets. A large number of
Ethiopians still live in chronic poverty and are vulnerable to climate shocks, in spite of the progress
with the government-run PSNP and the more recent UPSNP. In addition to Government-financed

31
activities in this area, World Bank operations and analytical and advisory services will support: (i)
efforts to build a sustainable and harmonized nationwide social protection system for poor and
vulnerable groups by extending current safety nets; (ii) improving effectiveness of the Government’s
safety net program in rural areas, including responsiveness to drought; and (iii) implementation of the
urban safety net program, given the high rates of youth unemployment and poverty in urban areas.
The World Bank aims to increase protection from food insecurity to 14 million people in the CPF period
and reduce average months of rural household food insecurity to two months. Through the safety nets
program an active dialogue on climate disaster risk financing has started to take shape and a possible
operation including a deferred draw down operation is being discussed.

81. Objective 2.2 Improved equity and utilization of quality health services. Significant progress
has been made in improving access to primary health care services, particularly for the rural poor, and
basic service gaps in antenatal care and reproductive health have narrowed. However, inequitable
access to quality health services, particularly for the bottom 20 percent, is an obstacle to further
improving health outcomes. The World Bank’s PforR will continue to support implementation of the
Health Sector Transformation Plan (HSTP) (2015-2020) by addressing constraints to improved equity,
utilization and quality of services, particularly for maternal and child health care. The target will be to
increase Penta3 vaccine coverage, for the bottom 20 percent in the worst-performing woredas, to 60
percent and to increase the proportion of women in rural areas using modern contraceptive methods
from 32 to 45 percent. The gaps in access to and quality of services are also being addressed by ESPES.

82. Objective 2.3 Increased access to improved water and sanitation. Access to safe water in both
rural and urban areas is critical for improved health and nutrition outcomes, better labor productivity
and for benefiting women, who disproportionately bear the burden of fetching water. Rapidly growing
urban populations and increased pressure on water resources will impose new demands on service
providers. World Bank operations will continue to support GoE’s goal of providing 100 percent
national potable water supply coverage by 2020. The target will be to boost the percentage of people
will access to improved water sources from 61 percent to 74 percent. Similarly, access to sanitation is
very low even though reductions in open defecation have been noted (down from 92 percent in 1990
to 29 percent in 2015). Sanitation is a key constraint in urbanization and development of smart
secondary cities. Addis Ababa is the only Ethiopian city with a sewer system, and it only covers 10
percent of its residents. World Bank operations and analytical/advisory work will scale up efforts to
improve access to sanitation services in urban areas. The CPF target is for the percentage of people
with access to improved sanitation to increase from 28 percent to 40 percent.

83. Objective 2.4 Improved basic education learning outcomes. Access to education has improved
nationwide, albeit from a low base, especially for the bottom 40 percent. However, significant
challenges in the education sector remain: high dropout rates (over 80 percent in rural areas during
the first four years of schooling), especially among the poorest 20 percent of households; and learning
outcomes are weak, especially for girls. World Bank operations, including the planned PforR (Ethiopia
Third General Education Quality Improvement Project – GEQIP3) (P163050) (FY18), will focus on
addressing constraints in the education sector at the school level, particularly for pre-primary up to
8th grade, the stage at which the major gains in basic education and literacy are to be made. The focus
will be on improvements in the quality of and equitable access to schooling. Key targets will focus on
improving girls’ learning outcomes in grades 4 and 8, to achieve at least gender parity, as measured
by a reduction in the percentage of students scoring “below basic proficiency”.

84. Objective 2.5 Improved early childhood nutrition and early learning outcomes. Ethiopia
performs poorly on early childhood indicators, particularly stunting and lack of early stimulation and
learning, which result in cognitive and health deficits and in turn lead to lower productivity and earning
capacity. Causes include, among others, lack of micronutrient and food diversity among pregnant
women and children, high infectious disease burdens such as diarrhea and malaria, inadequate clean

32
water and sanitation, and climate risks. The CPF sets an ambitious target of achieving a 36-percent
reduction in stunting prevalence for children aged 0-23 months.

85. Ethiopia is one of the pilot countries for the World Bank’s ‘Early Years’ agenda. The World
Bank will use a multi-sectoral lending and non-lending approach to target the various dimensions of
the Early Years agenda and contribute to both supply- and demand-side investments in nutrition and
health through household food security support with additional focus on drought-prone woredas,
health and nutrition services, and diversified and nutrition-rich crops and livestock products. The
World Bank will also address early stimulation through initiatives engaging parents, pre-primary
education and school readiness programs.

86. Objective 2.6 Increased access to services and job opportunities for refugees and host
communities. Ethiopia hosts the second-largest refugee population in Africa: they are from
neighboring South Sudan, Somalia, Eritrea, Sudan and Yemen, many of whom live in camps near the
borders of their home countries. In addition, Ethiopia also has a high number of internally displaced
people, most of whom live in situations of protracted displacement. The World Bank will work with
development partners (UNHCR and bilateral DPs) to support the GoE in its committed policy shift of
moving people from encampment to gradual socio-economic inclusion. Through the IDA18 Regional
Sub-window for Refugees, the World Bank will seek to support the Government in job creation for
refugees and host communities, and continue to support woreda-level governments in expanding
access to basic services for these communities.

87. Objective 2.7 Enhanced management of natural resources and climate risks. Forest depletion
and land degradation exert stress on already low levels of available water and undermine resilience.
Recent investments in sustainable land and water management, watershed restoration and small-
scale irrigation have improved land quality and the World Bank will support the GoE in sustaining the
gains that have been made. Less than 1 percent of land cultivated by smallholders, who produce over
95 percent of total agricultural production, is irrigated. In areas lacking shallow groundwater,
development/expansion of low-cost, small-scale irrigation solutions is desperately needed. World
Bank operations will continue to support resilience to drought and flooding, improved natural
resource and forest management, and introduce technologies and policies that reduce climate and
disaster risks and land-based carbon emissions. The World Bank is also addressing land tenure by
supporting the issuance of land-use certificates, as insecure land tenure and unplanned land use
further dampen investment in land resources, which exacerbate climate risks and aggravate water
stress. During the CPF period, the total area of reforested land, and the number of land-use certificates
issued, are each targeted to double.

Focus Area 3: Supporting Institutional Accountability and Confronting Corruption

88. Demand for government accountability in Ethiopia is rising, notwithstanding historical

traditions of deference to hierarchies and a “top-down” style of governing. While the Government
has established several formal feedback mechanisms at local levels and for specific services, additional
investment in accountability and transparency mechanisms is needed. To reduce corruption and
engage citizens in decision-making, citizens’ voices must be reflected, per the democratization
objectives articulated in GTP II. The CPF supports accountability and transparency mechanisms at local
levels and continues to assist efforts to increase capacity and improve governance in service delivery
as well as projects that strengthen government systems for citizen engagement (CE). In order to
generate and disseminate information on ‘what works,’ the World Bank will support improved data
collection at all levels of government by strengthening the capacity of the Central Statistical Agency
(CSA), which will enable monitoring of progress against development objectives, dissemination of
results, and inform evidence-based policy-making.

33
 Supporting Institutional Accountability and Confronting Corruption
Objectives 3.1 Increased capacity and improved governance in service delivery
3.2 Strengthened citizen engagement and holding government entities accountable
3.3 Improved domestic statistical capacity for enhanced evidence-based policy making and
monitoring

89. Objective 3.1: Increased capacity and improved governance in service delivery. Transparency
International’s annual Perceptions of Corruption Index ranked Ethiopia 103rd out of 175 countries in
2015. Corruption has been a roadblock to institutional accountability and governance in Ethiopia. The
Government has instituted several reforms to reduce corruption among civil servants and improve
social accountability and public financial management to improve service delivery. The World Bank is
supporting enhanced fraud- and corruption-prevention at the woreda level by introducing Ethics and
Anti-Corruption Officers in all sectors, and is working through the public financial management (PFM)
project to strengthen the PFM system to enhance governance and service delivery and implement the
e-procurement system. During the CPF period, all regions will implement a PFM Benchmarking Rating
System.

90. Objective 3.2: Strengthened citizen engagement and holding government entities
accountable. The World Bank has worked in collaboration with the Government and development
partners on citizen engagement and social accountability measures at lower levels of government. The
GoE recognizes the impact citizen engagement has on improving development outcomes. The WBG
will support the GoE in achieving GTP II targets of building ‘democratic and developmental good
governance’ by enhancing capacity of public institutions. Ongoing social accountability programs have
made notable progress in creating awareness among service providers and among citizens of service
standards and entitlements, developing basic skills for monitoring service provision, and promoting a
culture of budget transparency and accountability. The World Bank will assist in sustaining this
progress and expanding it to all sectors and all levels of government, and will support strengthening
grievance redress mechanisms. This will help to safeguard the well-being of groups affected by
government policy, especially in the context of resettlement.

91. The World Bank will also support increased involvement of women in feedback mechanisms
to counter their underrepresentation at all levels of decision-making. The World Bank will work with
GoE to introduce sustainability arrangements that underscore women’s participation for better
governance, and support policy dialogue to promote the elaboration of a comprehensive citizen
engagement strategy, including greater gender inclusion.

92. Objective 3.3: Improved domestic statistical capacity for enhanced evidence-based policy
making and monitoring. Ethiopia needs greater statistical capacity to monitor progress in all sectors,
manage risks and assess impact of policy reforms. Data collection is infrequent: to illustrate, the last
poverty data was collected in 2010/11. The World Bank is supporting capacity building of the CSA and
other government agencies to produce and disseminate timely and reliable data and improve
transparency of government data through technical assistance to Ethiopia’s Open Data Initiative. In
addition, the World Bank is assisting the GoE in conducting the next population census.

C. Implementing the Country Partnership Framework

Financial Envelope and IDA18 Allocation

93. The CPF (FY18-FY22) will span the period of IDA18 (FY18-FY20), and part of IDA19 (FY21-FY23),
in which Ethiopia is projected to receive a significantly increased IDA18 envelope16. The WBG will

16
Referenced IDA18 volumes are indicative. Actual PBA allocations will be determined annually during the FY18-
20 period and will depend on: (i) total IDA resources available; (ii) the number of IDA-eligible countries; (iii) the

34
apply a combination of lending, advisory and analytical work, and convening power to achieve the CPF
objectives. The indicative IDA18 allocation for Ethiopia is on the order of US$4.0-US$4.8 billion (among
the top three IDA18 recipients along with Bangladesh and Nigeria), not including additional resources
which Ethiopia could potentially access through the IDA18 special windows. These include the
Regional Window aimed at bolstering regional integration efforts; the Regional Refugee sub-Window
for countries hosting large refugee populations; the PSW to mobilize private capital, de-risk
investments, and promote private-sector based growth; the Scale-Up Facility providing non-
concessional borrowing for high-impact projects; and, if necessary, the CRW aimed at providing
support in the event of severe natural disasters, health emergencies, and economic crises. In addition,
the WBG will leverage all World Bank/IFC/MIGA instruments and seek to crowd in other financiers,
such as the private sector, philanthropists, and development partners to maximize the effectiveness
of development results.

94. This CPF puts forward an ambitious and innovative mix of instruments and will explore risk-
financing mechanisms: the lending program will feature Ethiopia’s first guarantee for renewable
energy, and the first-time access of the IDA18 Refugee Sub-Window to support refugees and host
communities. Lending to Ethiopia is currently in the form of Investment Project Financing (IPF)
operations with an increasing share of Program-for-Results (PforR) operations. The first PforR in
Ethiopia was the US$120-million Health MDG Project in FY13. Since then, use of this instrument has
grown steadily, accounting for 27 percent of the current portfolio. Four additional PforR operations
are planned for delivery in FY18 in energy access, education, ESPES, and the next-generation urban
development program. The Government appreciates the PforR model since it uses and builds on
country systems for delivery, which in turn strengthens those systems and spurs further reforms.
Development Policy Operations (DPOs) are currently not an instrument of choice in Ethiopia. As a
strong developmental state in the tradition of the East Asian experience, the authorities have a clear
vision for development, along with a strong desire to drive domestic economic policy reforms
according to the Government's pace. While support to Ethiopia from development partners – both
bilateral and multilateral -- is and remains strong, there are differing views on the need for policy
reforms, which implies a complex authorizing environment for DPOs in Ethiopia. In contrast, the PforR
instrument allows the WBG to engage with the GoE on sectoral policy reforms.

95. Given the importance of supporting improved conditions for private sector-led growth in
Ethiopia, the CPF will apply the principles of the WBG “cascade approach”. This will aim to expand
infrastructure financing options by making optimal use of scarce public funds and helping to effect
policy reforms that will crowd in private sector capital and create new markets (see Box 5 above). The
CPF will begin with the energy sector and possibly expand to agriculture, housing and other sectors.
In this CPF period the World Bank will also make use of the Contingent Emergency Response
Component (CERC) that can be activated for disaster response, such as in the case of droughts.

96. Synergies across the WBG will be leveraged in this fully joint CPF: IFC investments, along with
advisory services, will address the range of constraints to boosting Ethiopia’s competitiveness. The
WBG will seek to advance a private sector-led growth agenda in a country where the public sector
dominates much of the economy. Current investments span Agriculture and Forestry; Manufacturing;
and Accommodation and Tourism Services. Looking ahead, IFC has a strong pipeline of projects in
agriculture (poultry/dairy/animal production and cereals) and manufacturing (cement, glass
products); complemented by a diverse program of Advisory Activities including Investment Climate
(trade, tax, and business regulation); Lighting Africa; agribusiness; financial infrastructure (secured
transactions and collateral registries, credit bureau); and value-chain development. IFC, in partnership
with the other WBG institutions and local and international stakeholders, will deepen its focus on
addressing market failures, creating opportunities for new markets or strengthening them where

country’s performance rating, per capita GNI, and population; and (iv) the performance and other allocation
parameters for other IDA borrowers.

35
needed, including advice on the supportive public policies, regulations, institutions, and incentives. In
addition, with the IDA18 PSW facilities, IFC will be able to crowd in private capital to finance projects
in high-impact sectors (infrastructure, agribusiness and light manufacturing). IFC’s Advisory Services
will be scaled up and used as a first mover to support those areas at the country, sector, project and
firm levels. These interventions are intended to help boost Ethiopia’s competitiveness and support
sustainable economic growth by opening new markets, helping to improve the business environment,
bringing in new products and services to crowd in the private sector, supporting greater access to
finance, and contributing significantly to job creation.

97. Similarly, MIGA will actively seek opportunities to expand its engagement in Ethiopia during
the CPF period, particularly in the agribusiness, manufacturing and energy sectors. The current
portfolio consists of two projects in the agribusiness sector with total gross exposure of US$14.3
million. MIGA remains open for business in Ethiopia across all of its Political Risk Insurance (PRI)
product lines, including Transfer Restriction, Expropriation, Breach of Contract, and War and Civil
Disturbance. There is potential for increased use of MIGA guarantees to provide reassurance to
foreign investors, including investors in PPPs, and thereby support GoE efforts to attract foreign direct
investment into the country.

98. MIGA is currently evaluating one to two projects in the Agribusiness Manufacturing and
Services (AMS) sector for support with MIGA instruments. These investments are expected to yield
local benefits in terms of job creation and export development. MIGA is also exploring several leads
in the renewable energy sector which are expected to materialize over the CPF period. MIGA will also
seek to support developers successfully awarded a tender under the Scaling Solar Program (601584),
to which Ethiopia has recently signed on.

99. IDA financing for Ethiopia will continue to be supplemented by a strong trust fund portfolio
of nearly US$1.1 billion, aligned with the country program. Eighty-eight percent of all trust funds are
recipient-executed and twelve percent are WBG-executed. Most of these are multi-donor trust funds
managed by the World Bank. Many of the recipient-executed trust funds co-finance large government-
led programs such as PSNP, PBS/ESPES, GEQIP II, SLMP, AGP, and the Social Accountability Program.
For some of the large trust fund-based programs such as the PSNP, trust fund and donor coordination
units have been established, housed and staffed within the WBG. There are also stand-alone trust
funds, such as the upcoming Oromia Forested Landscape Program (P151294), the Statistical Capacity
Development Program (P163226), and the Reducing Emissions from Deforestation and Forest
Degradation (REDD) Readiness Program (P124074). The World Bank-executed trust fund portfolio is
well aligned with GTP II priorities and fosters new knowledge work in areas such as climate change
and disaster risk management, gender, urbanization, energy, finance, private sector development,
human development, early years, youth and skills development, labor markets and citizen
engagement.

100. The indicative FY18-FY19 IDA lending program for Ethiopia (see Table 2) will address the three
focus areas. To address energy access, the World Bank is assisting the GoE in launching a National
Electrification Program (NEP) which will be supported through a first of its kind energy sector PforR
operation to support implementation of the NEP and aiming to double energy access. The ‘Roads for
Market Access’ will enable market access for farmers, thereby improving livelihoods and also
strengthening regional growth. In the longer term they will provide the building blocks to connect
regional centers. As migration increases to urban areas, urban development will be a key focus for the
Government and a necessary step in the development of smart secondary cities. The World Bank will
work with the Government to design urban development programs that will address service delivery,
local government strengthening and other important urban issues such as transport, energy and jobs.
The ‘Resilient Landscapes/Sustainable Land Management Program’ (P133133) is one of Ethiopia’s
flagship programs. In addition to large-scale landscape rehabilitation, it includes land tenure

36
certificates, the absence of which is a binding constraint to further growth and is being addressed for
the first time in a systematic way.

101. The CPF will support Ethiopia’s growing regional engagement through the IDA18 Regional
Window. Ethiopia is currently engaged in four regional IDA operations: the Regional Pastoral
Livelihoods Resilience Project (US$75 million) (P129408); the Eastern Electricity Highway Project
(US$217 million) (P126579); the Africa Centers of Excellence Project (US$24 million) (P151847); and
the Development Response to Displacement Impacts Project (US$100 million) (P152822). Ethiopia is
planning to collaborate in additional regional initiatives in the areas of skills development, host
communities and trade corridors.

Table 2: Indicative FY18-FY19 IDA Lending Program

Focus Areas Indicative Lending FY18-FY19 IDA18 Special Windows
Promote structural and - Roads for market access (US$375m) - Jobs Compact (US$50m IDA
economic - Livestock and Fisheries Sector Development and US$150m Sub-Regional
transformation through (US$150m) Refugee Window)
increased productivity - Urban development (US$400m) - Berbera corridor (possible,
- Electricity access (US$250m) Regional Window)
- Energy guarantee (US$50m) - Skills development (possible,
- Competitiveness and job creation AF (US$ Regional Window)
130m)
Building resilience and - Enhanced Shared Prosperity through - Development response to
inclusiveness Equitable Services (ESPES- service delivery displacement impacts project
for health, education, agriculture and (Regional Window)
WASH, US$700m)
- Ethiopia Rural Safety Net Project
(US$600m)
- General Education Quality Improvement
Program (US$375m)
- Resilient Landscapes (US$100m)
- Rural Water Supply, Sanitation & Health
(WASH)
- Pastoralist Support
- Urban Safety Nets 2
Supporting institutional - Enhanced Shared Prosperity through
accountability and Equitable Services - statistics and social
confronting corruption accountability components, including
financing for next Census

102. Ethiopia is expected to request support from the IDA18 Regional Sub-Window for Refugees.
Ethiopia hosts more than 800,000 refugees, the second largest refugee community in Africa. Ethiopia
plans to invest in a job-creation project targeting refugees and the Ethiopian host communities.
Another regional project with Uganda (Ethiopia US$99 million, Uganda US$71 million) adapts the
lessons of the joint World Bank-UNHCR report on “Forced Displacement and Mixed Migration in the
Horn of Africa” to support improved service delivery and livelihood opportunities through a CDD
approach. This project also includes Djibouti, Uganda and Kenya. The forthcoming ‘refugee eligibility
note’ for the sub-window will inform these operations.

103. Accessing resources from the new IDA18 Scale-Up Facility as well as the Private Sector
Window will be explored. A first operation on water and sanitation is being implemented through a
combination of regular IDA and IDA17 Scale-Up Facility (SUF) resources. Additional SUF-financed
projects are being explored in energy, agriculture and urban development, taking into account
consistency with non-concessional borrowing limits agreed to in the context of the Non-Concessional
Borrowing Policy (NCBP). In addition, Ethiopia will be eligible to seek support from the PSW for

37
operations in energy, manufacturing services, agribusiness, and industrial parks in order to leverage
the deepened engagement by both IFC and MIGA in these sectors.

104. This CPF addresses all of the IDA18 special themes: climate change; gender and development;
fragility, conflict and violence (FCV); jobs and economic transformation; and governance and
institution building. The ongoing and planned operations that address natural resource management
aim to build resilience to climate shocks. The energy operations ensure clean energy, and are designed
to be climate friendly. A gender filter is being developed to accompany project design and ensure that
all operations address gender gaps (see Annex 11). Jobs and economic transformation are addressed
by a majority of the programs in both rural and urban contexts. FCV is supported through programs
addressing the needs of refugees and host communities. Finally, efforts are under way to further
strengthen citizen engagement across the portfolio to achieve better governance, institutional
development and greater citizen engagement.

105. Beyond financing, the WBG will continue to deliver a strong program of multi-sectoral
Advisory Services and Analytics (ASA). This will build on the influential ASA work that was produced
during the preceding CPS and CAS periods and support capacity-building efforts that are an essential
part of economic transformation in Ethiopia. The ASA agenda (see Box 6 and Table 3) will help to
inform the lending program and identify priority areas for policy dialogue with the authorities.

106. A key challenge will be to achieve better coordination for greater impact. While improvements
have been made in structuring multi-sectoral programs, complex projects under the CPF will require
even closer collaboration between WBG Global Practices (GPs) as well as improved policy dialogue
and coordination among GoE programs at the central and decentralized levels. One such example of
coordination is in the urban sector, where multiple programs and projects are addressing cross-cutting
challenges that span multiple GPs (Urban Safety Nets, Urban Transport, Urban Development, Urban
Water & Sanitation, and Industrial Parks). Similarly, under the Early Years Agenda, competitiveness,
resilience, and governance agendas, beyond the more obvious human development programs of
health, education, and nutrition, will require creative working arrangements across and within GP
teams.

Financial Management and Procurement

107. Financial Management activities during the CPF period will focus on two interlinked
objectives: fiduciary oversight of projects; and supporting Ethiopia’s efforts to build their PFM
capacity. Fiduciary oversight is aimed at providing reasonable assurance that WBG-financed projects
use resources for the intended purposes. The capacity-building objective is to support and sustain
PFM reforms from federal to local (woreda) levels, enhancing the efficiency of basic service delivery.
The reforms aim to strengthen systems and build human resource capacity, accountability and
oversight functions. The World Bank supports this Government PFM reform agenda through ongoing
projects including the Ethiopia PFM Project, the Protection of Basic Services Project, the Urban Local
Government Development Program, Enhancing Shared Prosperity through Equitable Services
Program, Ethiopia Electric Network Expansion Project, and the Urban Water Supply and Sanitation
Project. Technical assistance and diagnostic analytical work will also be conducted through
Programmatic Knowledge Services (PKS) on issues such as managing public resources for improved
service delivery, and public expenditure and financial accountability (PEFA), to improve understanding
of the state of PFM and introduce new approaches. With respect to high-level PFM issues, the World
Bank will continue its policy dialogue with the Government, in coordination with DPs, to shape the
PFM reform agenda using existing forums including the PFM Sector Working Group.

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 Box 6: Advisory Services and Analytics (ASA) Products
Both the GoE and development partners have expressed appreciation for the quality of the WBG knowledge
products and the leadership role of the World Bank in providing timely analytical support. Notable ASA
products over the past four years include: The Ethiopia Economic Update Series (four reports produced during
the CPS period), the Poverty Assessment (2014), SME Access to Finance Study (2014), Public Expenditure Review
(2015), “Ethiopia’s Great Run: The Growth Acceleration and How to Pace It” (2015), Urbanization Review (2015),
and Systematic Country Diagnostic for Ethiopia (2016). It is noteworthy that the SME Access to Finance Report
and the Urbanization Review each triggered significant IDA operations in areas previously thought to be “off-
limits”. Likewise, the “Great Run” report and the SCD have each opened up discussions on the sustainability of
the infrastructure financing model and the need to expand the role of the private sector in the economy to
ensure long-term growth.

A key component of the ASA work during the CPF period will be the structured policy dialogue with the
Government on macroeconomic and fiscal management particularly in response to rising debt vulnerabilities
and the non-concessional borrowing (NCB) limit. Support will be structured around debt management, debt
sustainability analysis, management of SOEs and fiscal risks, and public investment management. Analytical work
will also address domestic resource mobilization and tax, exchange rate management including the exchange
rate regime, and ways of expanding the services and manufacturing sectors. Additional analytical topics will be
identified in the course of the CPF period as needs arise and in close collaboration with the GoE.

The Early Years agenda will also be an important component of the ASA program and will focus on building
resilience, nutrition, education, health and agriculture. As Ethiopia builds resilience against climate shocks and
improves agricultural productivity, it is important to establish a comprehensive and multi-sectoral approach to
improving maternal and child health, early stimulation/education and support to cognitive function, and
improved nutrition including agricultural productivity and nutrient-enhanced crops. Despite recent gains
towards several of the MDGs, Ethiopia continues to battle high rates of malnutrition and stunting (38 percent of
children under-5 are stunted, DHS 2016). Given the long-term implications of early childhood deficiencies
(cognitive, nutritional, and others), the Early Years agenda will seek to formulate a forward-looking action plan
to address these issues.

Youth employment and improved labor market outcomes for vulnerable groups will constitute another
important area for multi-sectoral knowledge work. Job creation, skills and employment, particularly for a
growing youth cohort, pose a pressing challenge for Ethiopia. Employment is also necessary to integrate the
rising numbers of refugees being hosted in Ethiopia. This work will inform operations and enhance policy
dialogue.

Important ASA work is also planned in the energy sector, financial services sector, competitiveness and
business climate, water and sanitation, gender, resilience and poverty monitoring. In the energy sector, a
strong lending portfolio will be complemented by knowledge work on strategy and utility reforms. In the finance
sector, ASA work will entail formulating a financial inclusion strategy, as well as inclusive insurance mechanisms.
Gender will be an important cross-cutting analytical focus. In entrepreneurship and SME development, impact
evaluations will study women’s entrepreneurship specifically. Other impact evaluations will explore women’s
role as agricultural leaders. Poverty monitoring is a strong analytical focus in Ethiopia, both for the World Bank
and for the GoE to evaluate the effectiveness of national programs. The most recent LSMS was launched in
February 2017, and the World Bank is assisting the GoE with the next census that will enable more detailed
poverty monitoring. In close collaboration with the Government the World Bank is also conducting a poverty
and WASH diagnostic to complement the lending in water and sanitation.

39
 Table 3: Knowledge and Convening Services FY18-FY19
Focus Area 1: Promote structural and Focus Area 2: Building resilience and Focus Area 3:
economic transformation through inclusiveness Supporting
increased productivity institutional
accountability and
confronting corruption
Macroeconomic Dialogue (BB) Gender - Managing public
- Debt and public investment - Gender and wage employment (TF) resources (TF and
management (BB) - Women’s Entrepreneurship BB)
- SOE management (BB) Development (TF, IE) - Mainstreaming
- Monetary policy management (BB) - Women agricultural leaders (TF, IE) citizen engagement
- Economic Update on services and - Support to Ethiopia gender lab (BB) in World Bank
manufacturing linkages (BB) Poverty Monitoring operations (TF)
- Tax policy studies (BB) - Improving services for the bottom 40 - Civil registration and
Energy Sector Development percent (TF and BB) vital statistics (TF)
- Energy sector review and strategy - Support to GoE to improve urban - Impact assessment
(EW) sanitation (TF) of service delivery
- Clean cooking energy (TF) - WASH and poverty diagnostic (TF) (BB and TF)
- Off-grid renewable energy (TF) - Statistical capacity including next
- Wind sector (TF) census (TF and BB)
Financial Sector Development (TF Resilience and safety nets
and BB) - Strengthening implementation of
- National financial inclusion Social protection systems (TF)
strategy (TF) - Improvement in health care (TF)
- Consumer protection and financial - Sustainable and equitable WASH
infrastructure (TF) services (TF)
- Promoting inclusive insurance (TF) - Urban productive safety nets (TF, IE)
Urban (TF and BB) - Support for DRM framework (TF)
- Experience sharing on urban - Performance of cereal markets (BB)
planning (TF) Jobs
- Urban policy (TF and BB) - Multisectoral work on jobs (BB and
- Resilience for the Ethiopian road TF)
network (TF) - Analytical work in preparation to jobs
- Urban land and affordable housing compact (TF)
(TF) Other
Trade and competitiveness (TF and - Review Ethiopia rural roads program
BB) (BB)
- Firm productivity and - Early Years agenda (BB)
competitiveness in global - Pastoralism (BB)
markets (BB)
- Firm level entry, expansion and
productivity across targeted
sectors (BB and TF)
- Improving the Business
Environment through Investment
Climate Reforms (TF)
Other
- Digital development strategy for
Ethiopia (TF)
- Safety of dams (BB)
- Support for instituting a PPP
Framework (TF)

40
108. Government has recognized that a key tool for improved service delivery is a strong PFM
system. Likewise, GoE realized that services can only be delivered if funds are available to spending
units in a timely manner, with proper accountability, transparency, and reporting. Since 2004, the
WBG and other DPs have supported GoE in decentralizing basic service delivery in the form of federal
block grants to sub-national levels. Government reforms across the full spectrum of the PFM cycle
have been supported by an IT accounting system that has been operational since 2007. As a result of
these initiatives, Ethiopia’s PEFA ratings have improved steadily. That said, PFM capacity varies across
regions of the country, with mixed performance at the woreda level. Under the ongoing PFM Project
(approved in February 2016), the World Bank is supporting improved efficiency, transparency and
accountability at both the federal and regional levels. Beyond this operation, World Bank Governance
teams are providing support across the entire portfolio to help improve PFM, procurement, and anti-
corruption at the local levels.

109. During the CPF period the World Bank will support the Government procurement system
through the provision of procurement oversight and support in World Bank-financed projects and
programs. The World Bank will continue to engage the Government in policy dialogue to strengthen
the national procurement system, consistent with the procurement-related objectives in GTP II. In this
respect, the World Bank will continue to work at all levels for better service delivery, through improved
procurement processes, as an active member of the PFM Sector Procurement Working Group.
Through the ESPES program, the World Bank will continue to roll out Procurement Performance
Indicators at the regional and local levels. In accordance with GTP II’s good governance theme, the
World Bank will also support government’s plan to modernize the country’s procurement capabilities
through the implementation of an e-procurement system. During the CPF period the World Bank will
support government staff in implementing the World Bank’s New Procurement Framework and
thereby obtain value for money with integrity in delivering sustainable development. Additional
capacity strengthening will be provided by the World Bank through procurement training,
certification, and accreditation programs and short-term procurement trainings in collaboration with
a local training institution. In collaboration with the Government and other DPs, the World Bank will
also undertake a Country Procurement Assessment Report (CPAR) during the CPF period to further
inform procurement reform initiatives.

Partnerships and Donor Coordination

110. Partnerships are a key element of engagement in Ethiopia, and one of the WBG strengths has
been in leveraging financing and non-lending support from other development partners for large
programs. For example, the Expressway Development Support Project (EDSP) is co-financed with
China EXIM Bank and South Korea EXIM Bank. EDSP brings together traditional and non-traditional
development partners to work on a single project, with standardized design, safeguards, and joint
supervision. This type of arrangement also applies to programs such as PSNP, AGP II, and SLMP.

111. The WBG also engages with non-governmental partners and this engagement has been built
around three focal areas. Relations with Addis Ababa University (AAU) have been deepened to
promote knowledge-sharing activities, including collaboration on a thematic development dialogue
series in Ethiopia and establishment of a Development Knowledge and Information Corner at AAU,
providing access for over 50,000 students to WBG knowledge. The World Bank has forged a similar
relationship with the Consortium of Christian Relief and Development Associations, an umbrella
organization of more than 330 civil society organizations (CSOs) in Ethiopia. In addition to providing
access to WBG knowledge, the partnership ensures the WBG stays connected to CSOs. The PBS Social
Accountability Program is an additional forum for engagement. WBG has also established a
partnership with the Addis Ababa and Ethiopia Chambers of Commerce and Sectoral Associations
(AACCSA), building on the ongoing IFC-led public-private dialogue. In the context of supporting
Ethiopia’s accession to the Extractive Industries Transparency Initiative (EIT), the World Bank has

41
worked with member CSOs of the Ethiopia EITI Multi Stakeholder Group to enhance the capacity of
these CSOs to participate in the reporting and disclosure requirements of the EITI process.

Monitoring and Evaluation

112. The Results Framework (Annex 1) will serve as the principal tool for evaluating progress
towards achieving the CPF objectives. Midway through the CPF period, a PLR will be prepared. An
annual review of the portfolio will be conducted to monitor progress toward CPF objectives and
address any CPF program issues, or changes in country circumstances that may arise, in a timely
fashion. The WBG will continue to work with the GoE to review the portfolio through engagements
such as the Country Performance Portfolio Review, which is planned for September 2017, and use that
forum to address implementation issues. The PLR will assess the progress and continued relevance of
the CPF, make any necessary mid-course corrections to the program and corresponding revisions to
the Results Framework, and inform the Board of CPF progress and revisions.

113. The CPF outcomes will also be measured using surveys such as the Demographic and Health
Surveys (DHS), the World Bank Living Standard Measurement Study (LSMS), Household
Consumption Expenditure Survey (HCES), and the Welfare Monitoring Survey (WMS). The HCES and
WMS were conducted in FY16. The HCES, which is used to produce monetary poverty statistics,
specializes in measuring consumption and expenditure. The WMS focuses on health, education, access
to services and vulnerability to shocks. Data collection for these two surveys was expected to be
completed in June 2016, and results are expected by end-FY17. The GoE is considering increasing the
frequency of the HCES, to every three years, in order to monitor well-being in a timelier manner; the
World Bank is considering ways to support this. A new wave of LSMS data was released in February
2017. In addition, in 2016 a full Demographic and Health Survey (DHS) was conducted and preliminary
results, which are now available, will inform analysis of key indicators.

114. The World Bank will support enhanced statistical capacity in Ethiopia. The Ethiopian CSA’s
National Strategy for the Development of Statistics (NSDS II) for the period 2015-2020, and the
forthcoming census, will be supported through ESPES. The NSDS II focuses on data quality,
coordination of the national statistical system, efficiency of data collection, methodological
improvements, statistical modernization and human and infrastructure capacity. The World Bank has
supported the preparation of NSDS II through the US$10-million Statistics for Results Catalytic Fund,
which is currently under implementation. Census in Ethiopia are conducted at a ten-year interval and
the most recent one was completed in 2007. The census, scheduled to be conducted in 2018, is
expected to resolve the wide disparity between the population estimates of CSA and those of the
United Nations.

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 IV. MANAGING RISKS

115. The overall risk to achieving the development objectives for Ethiopia, as outlined in the CPF,
is assessed as Substantial. The risks are directly related to: (1) political economy and governance
challenges, (2) uncertainty in the macroeconomic environment, (3) sector strategies and policies, (4)
weak institutional and implementation capacity, (5) environmental and social risks, and (6)
stakeholder risks. These risks will continue to be monitored closely during the CPF period in close
collaboration with the Government and development partners.

Table 4: Systematic Operations Risk-Rating Tool (SORT) for Ethiopia

Risk Categories Rating

1 Political and governance High
2 Macroeconomic Substantial
3 Sector strategies and policies Substantial
4 Technical design of project or program Moderate
5 Institutional capacity for implementation and Substantial
sustainability
6 Fiduciary Substantial
7 Environment and social High
8 Stakeholders High
9 Other (Climate and Disaster Risks) Substantial
Overall Substantial

116. Political economy and governance risks: The CPF has been prepared during a period of civil
unrest, resulting in a continuing State of Emergency to ensure stability; rising demands for good
governance and accountability; and growing security concerns from the instability of neighboring
states. While WBG engagement is designed to deliver significant, positive change for poor households
in Ethiopia, some could question the continuing support in this context, as seen from previous protests
including at the World Bank headquarters.

117. The effectiveness of the CPF program will depend, in part, on external factors beyond the
control of the WBG: The sustainability of interventions during the CPF period will depend on the
willingness and ability of the GoE to continue to strengthen voice and accountability mechanisms.
Citizen engagement in local project-financed activity is now mandated in all WBG projects and
programs, combined with mechanisms for monitoring, grievance redress and reporting, to help
mitigate risks. The CPF places significant emphasis on supporting the GoE in implementing GTP II
through enhanced citizen engagement platforms. Political risks can also be mitigated by: (1) carefully
planning missions to take security concerns into account; (2) implementing sound and thorough
monitoring of all environmental and social safeguards; (3) ensuring an ongoing program of
communications and outreach; and (4) careful project design. Building local ownership and support
up-front, through citizen engagement mechanisms and regular project-level participation modalities,
will help to improve prospects for successful implementation of the CPF program. Beyond citizen
engagement, efforts to support private sector-led growth will depend on GoE willingness to involve
private sector players in strategic sectors such as infrastructure, telecoms, and financial markets.

43
118. Macroeconomic Risks: Ethiopia’s current development policy choices are subject to a number
of trade-offs, which, if unaddressed will pose macroeconomic risks. The following issues are important
elements to monitor over the CPF period: First, allocations of rationed credit and foreign exchange
primarily benefit public investment, but crowd out the domestic private sector. Second, an overvalued
real exchange rate cheapens public capital imports, but undermines external competitiveness. Third,
substantial domestic and external public borrowing for public infrastructure investment is leading to
rising debt levels and a growing risk of external debt distress. As a commodity exporter, Ethiopia is
subject to global price volatility and vulnerable to external economic shocks. All of these issues pose
risks to the macro-sustainability of economic growth in Ethiopia, particularly as the Government seeks
to achieve lower middle-income status by 2025. These risks will be partly mitigated through policy
dialogue on economic transformation, and the targeted interventions described in this CPF to advance
structural transformation.

119. Social Inclusion Risks: Benishangul Gumuz, Gambella, and Somali are most vulnerable to
unequal access to the basic goods and services that support improved human development outcomes.
Despite the GoE’s efforts, these regions do not enjoy equitable access to education, health, water,
sanitation and other services, or to labor markets or social protection mechanisms, even as they face
increasing exogenous shocks from climate risks such as drought. Similarly, there has been limited
progress in gender equality in education, very low percentages of births attended by skilled health
staff, and female unemployment rates much higher than those for males. WBG-funded operations will
focus increased attention on social inclusion and gender equality. Social inclusion aspects (including
for youth) will be mainstreamed across all projects and programs. A Gender Filter is being proposed
for the CPF (see Annex 11), to be applied to all operations in Ethiopia during the CPF period, which will
support project teams in designing gender-friendly operations and generating sex-disaggregated
project results for ex-post assessment and learning.

120. Weak Institutional Implementation Capacity: There is considerable risk in the management and
implementation of WBG-financed projects due to the inexperience and weak capacity of some line
ministries and agencies, as well as limited ability to deliver technical support to beneficiary
communities, particularly in the regions, woredas and kebeles. There is also a high rate of turnover of
project staff within all implementing agencies, due to low salary levels, making it more difficult to build
long-term capacity. The high level of staff attrition, combined with the remoteness of many project
sites, poses a substantial risk to the CPF program and may delay or preclude delivery of program
results. The CPF proposes to mitigate these risks by supporting improved technical capacity of public
institutions (including financial institutions), and providing technical assistance at various levels of
government (federal, regional, woreda and kebele) as well as partnering with other development
partners to strengthen government capacity, especially on environmental and social safeguards. We
will focus increased, portfolio-wide attention on enforcement of health and safety standards in IDA-
financed activities, particularly in infrastructure projects.

121. Fiduciary Risk: This is rated substantial because of weak procurement and financial
management oversight bodies at the regional and woreda levels and a shortage of qualified staff. Key
mitigating measures include continual training and close implementation support. Staffing is being
increased in the Addis office to meet this challenge.

122. Environmental and Social Risks: Following a series of high-level dialogues with the GoE starting
in 2009, progress was made in 2013, such that the World Bank’s Indigenous Peoples Policy (OP 4.10)
is now routinely applied in Ethiopia. OP 4.10 is applied not merely as a compliance issue, but as part
of an opportunity for underserved groups and as a tool to enhance social inclusion in WBG-supported
projects. As a result, social assessments prepared for WBG projects describe free, prior and informed
consultations leading to broad community support. They also include a Social Development Plan,
which provides the summary of potential risks and challenges as well as recommendations and
measures to mitigate adverse impacts, promote culturally appropriate benefit-sharing, address

44
grievances, and monitor and evaluate project impacts. With regard to implementation of the
Management Action Plan for the Ethiopia Protecting Basic Services Project (PBS3) (P128891), as of
February 2017 actions have been completed regarding production of a safeguard management
manual for communities (woreda level); support for smallholder agriculture in the Gambella region;
support for PFM in the woredas; and benchmarking of woreda PFM performance17. Toward mitigating
these risks, which are rated a high, a comprehensive Safeguards Portfolio Review was conducted in
March/April 2017, which identified safeguard non-compliance and social risk as the two most pressing
risks to the WBG portfolio in Ethiopia. Mitigation measures are to be presented in the preliminary
draft report, which is expected to be presented in July 2017.

123. Stakeholder Risk: This is rated high because of the civil disturbances that engulfed many parts
of the country last year. Many project implementation units lack sufficient consultation and
awareness-raising capacity to engage in constructive dialogue with local communities. To mitigate this
risk, it is recommended that CPF program design and implementation include a built-in continuous
consultation process, aimed at garnering broad community support, strong communication measures
to mobilize and inform local communities, strengthened participatory development models, and
enhanced transparency in project-supported activities and safeguards management.

124. Ethiopia has an adequate legal and institutional framework to perform safeguards-related
due diligence. The main challenge is weakness in enforcement and coordination between federal,
regional and woreda levels of government in the planning and management of the safeguards process
applicable to WBG-funded projects and programs. To mitigate any safeguard risks, capacity of the
implementing agencies will be strengthened through training, knowledge exchanges, formal
structured training collaboration with local universities, and other measures to improve compliance,
monitoring, and reporting.

125. Ethiopia Land Policies: The GoE has adopted two controversial land policies, namely: (i)
Commune Development Program, currently under implementation in the emerging regions, with the
stated goal of aggregating scattered communities for the purpose of providing them with basic
services; and (ii) Land-to-Investors policy, an agricultural land policy to encourage private investment
(both foreign and domestic) in large-scale commercial farms. These two land policies have been
perceived in some quarters as favoring private international investors, a risk which arises as a result
of the weak existing property rights, perceived equity issues, the nature of physical displacement and
disruptions of livelihoods on the affected communities. The WBG is not promoting these land policies,
and recognizes the need to ensure a strategic approach to risk management associated with
resettlement in areas concurrent to WBG-funded projects. To address these risks, project preparation,
design, implementation and supervision includes a number of measures. This includes screening
criteria to ensure that WBG-funded projects are not knowingly active in these areas, particularly in
non-viable commune centers; implementation of a proactive communication strategy to clarify what
the WBG operation does and does not finance; and promotion of participatory approaches which
support extensive local consultations and strengthen the client’s safeguards system to promote
inclusiveness and sustainability. This is bolstered by support to the GoE in its efforts to improve
governance and accountability, in part through the WBG-financed Social Accountability Program. The
GoE has also provided assurances that WBG-funded projects will not be implemented in areas where
these two land policies are being implemented.

17
Ethiopia – Third Phase of Promoting Basic Services Project (PBS3 – P128891): second progress report on the
implementation of management’s action plan in response to the Inspection Panel Investigation Report, World
Bank, 2017.

45
126. Climate and Disaster Risks: The CPF program is vulnerable to recurrent droughts/floods and
other climate-related risks. Ethiopia remains vulnerable to various climate shocks, particularly the
strong possibility that food price- and/or weather-related shocks will affect the bottom 40 percent.
The WBG is providing financial and other support to the GoE to help mitigate climate and disaster
risks. This work involves investments to improve the resilience of rural landscapes, including
protecting and expanding forest cover, boosting crop productivity, and enhancing livestock production
systems. It also includes support for early warning and contingency budgets, disaster risk response,
and climate-resilient investment planning, along with strategic advisory services to the Ministry of
Finance and Economic Cooperation’s (MoFEC) Climate Resilient Green Economy (CRGE) initiative.

46
 ANNEX 1: ETHIOPIA CPF – FY18-FY22 -- RESULTS MATRIX

Ethiopia CPF – FY18-FY22 -- Results Matrix

Focus Area 1: Promote Structural and Economic Transformation Through Increased Productivity.
Ethiopia’s success in achieving structural transformation, as articulated in GTP II, will depend on sustaining the economic growth rates of
the past decade and boosting productivity and competitiveness across a range of sectors. The SCD identified several challenges, beyond the
eight binding constraints, in order for Ethiopia to achieve the Twin Goals: (i) create a more competitive private sector by lowering regulatory
barriers and boosting financial inclusion; (ii) increase access to reliable energy; (iii) remove the main constraints to agricultural growth which
include low agricultural productivity and commercialization; (iv) increase connectivity and improve urban planning and land management
to help catalyze growth, job creation, and service delivery; and (v) develop new financing mechanisms for infrastructure. The CPF presents
a multi-sectoral approach to addressing these constraints while supporting the priorities of GTP II. Much attention will also be given to close
the job and asset gap between men and women.
CPF Objective 1.1: Enhanced business and investment climate, notably access to finance for MSMEs
Intervention Logic
In order for Ethiopia to create a more competitive private sector, a number of constraints must be removed, notably (as measured by its
ranking among 190 economies in the 2017 Doing Business Report) starting a business (179 th), getting credit (170th), trading across borders
(167th), and protecting minority investors (175th). Under GTP II, the GoE seeks to reduce regulatory barriers for businesses and investment,
support the quality of products and services of firms to make them more competitive, supply land for business development through
industrial parks, and pursue an exchange rate policy that promotes exports. The WBG, through the Competitiveness and Job Creation
Project, is helping to address the constraints to industrial zone development, investor promotion and industrial zone infrastructure. The
forthcoming National Quality Infrastructure Development Project will support improvements in Ethiopia’s national infrastructure through
delivery of quality assurance services to enterprises. The World Bank and IFC are providing advisory services to address business
environment issues through the Ethiopia Investment Climate Advisory Program. These joint efforts will help reduce legal and administrative
barriers to foreign investment, strengthen the legal and regulatory framework for foreign investor protection and transparency, and help
attract additional FDI in key sectors (food & beverages, tourism, and leather/garments). IFC will also pursue investments to support private
sector growth while also achieving demonstration effects and MIGA will actively seek to expand use of guarantees to provide reassurance
to foreign investors and thereby support GoE efforts to attract foreign direct investment into the country. The World Bank provided recent
analysis on the importance of the exchange rate for structural transformation. Based on government demand the World Bank team will
support additional technical analysis during the CPF period.

47
 Limited access to credit for private investment is a binding constraint to the growth and competitiveness of firms, particularly Micro, Small
and Medium Enterprises (MSMEs) -disproportionately for women-owned firms- and is a priority of GTP II. The WBG has launched a series
of interventions supporting the GoE’s objective of enhancing access to finance, especially for MSMEs. The Harnessing Innovation for Financial
Inclusion (HiFi) Project is leveraging rural and urban safety net programs in Ethiopia to expand access to transaction accounts by the
unbanked. The FIRST-funded Promoting Inclusive Insurance Project is supporting access to insurance services of quality, value and safety for
low income groups and contribute to broader financial inclusion. The Financial Inclusion Support Framework (FISF) is helping Ethiopia to
implement the National Financial Inclusion Strategy. The SME Finance Project is helping to support financial intermediaries to deploy novel
lending techniques to reach SMEs; build the necessary financial infrastructure (i.e., collateral registry, insolvency and creditor/debtor
regime); and address SMEs’ bankability constraints by providing technical assistance, especially on business development. This intervention
complements the ongoing Women Entrepreneurship Development Project that is serving female-owned micro and small enterprises.
Advisory services will continue to strengthen the secured transactions and collateral registry regime and to enhance the Ethiopian credit
information system in compliance with international best practice.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Parliamentary proclamations Industrial parks regulatory function Ongoing:
approved or government policies adopted established and fully operationalized WB Operations
to improve the business and investment Baseline: No (2016) ET Competitiveness and Job Creation Project
climate (number) Target: Yes (2020) (P143302)
Baseline: 6 (2016) National Quality Infrastructure Development
Target: 11 (2021) Enterprises that used National Quality Project (P160279)
Infrastructure institutions’ quality Ethiopia SME Finance Project - SMEFP
Indicator 2: Value of financing to MSMEs assurance services (number) (P148447)
facilitated through WBG projects and Baseline: 1,650 (2016) Women Entrepreneurship Development Project
18
advisory services (US$ million) Target: 2,850 (2021) – WEDP (P122764)
Baseline: 42 (2016)19 WB ASA
Target: 2,600 (2021)20 Financial institutions participating in Ethiopia Trade and Competitiveness and
credit reporting systems (number) Women Entrepreneurship
Baseline: 18 (2016) Financial Deepening and Development Program
Target: 25 (2021) (P156978)

18
This indicator aggregates the financing to MSMEs facilitated by WB financed projects and the collateral registry that will be established with support from IFC AS.
19
Baseline corresponds to financing through WEDP only as SMEFP just started disbursing in 2017 and the Collateral Registry was not established yet.
20
Target corresponds to value of financing to MSMEs facilitated through WEDP (US$50 million), SMEFP (US$150 million) and IFC AS (US$2,400 million three years after
the creation of the registry).

48
 Macroeconomic, Fiscal, and Debt Dialogue
Indicator 2.1: Value of financing to MSMEs Collateral Registry established (P162271)
facilitated through WBG projects and Baseline: No (2016) IFC Advisory and Joint with WB
advisory services (US$ million) to female Target: Yes (2019) Ethiopia Investment Climate Program Phase II
owned SMEs21 Secured Transactions and Collateral Registries
Baseline: 42 (2016) Safety net recipients with transaction Ethiopia (601522)
Target: 605 (2021) accounts (number) Sub Saharan Africa Credit Bureau African
Baseline: 144, 032 (2016) Countries Consolidated (600666)
Target: 400,000 (2021) East Africa Corporate Governance Program
(600673)
East and South Africa SME (600844)

Planned:
IFC Advisory and Joint with WB
Ethiopia Textile Competitiveness (601500)
Development of economic models to estimate
the impact of private sector investments
(601779)
Efficient Securities Markets Institutional
Development Ethiopia (601628)
Africa Leasing Facility II Ethiopia (600334)
SME Banking
Business Edge
IFC Investments
DMC Expansion (37346)
MIGA Guarantees
Possible guarantees for manufacturing and
services
CPF Objective 1.2: Increased access to reliable energy supply

21
Baselines and targets are based on value of financing to MSMEs owned by women which for WEDP is 100 percent, for SMEFP is 50 percent and for the SMEs that will
use the collateral registry supported by IFC AS is 20 percent.

49
 Intervention Logic
Enhanced access to reliable electricity accelerates economic growth, improves quality of life and income opportunities for households, and
enhances competitiveness of the private sector, as noted in the SCD. As part of its GTP II, the GoE is focusing on (i) leveraging electricity
sector for economic growth by focusing on improved access; and (ii) continued electricity infrastructure development by tapping into
renewable energy resources. The WBG is financing multiple operations to increase access to electricity services and improve reliability of
the electricity network in Ethiopia. The Electricity Network Reinforcement and Expansion Project (ENREP) and its AF, and the forthcoming
Ethiopia Electrification Program-Program for Results (ELEAP) (P160395), are financing electricity infrastructure development to expand and
improve energy service delivery. ENREP and its AF also support (through a Development Bank of Ethiopia (DBE) credit facility to Micro
Finance Institutions (MFIs) and Private Sector Enterprises (PSEs)) the delivery of off-grid renewable energy solutions for households not
connected to the grid. The WBG Lighting Africa Initiative has been providing advisory services to clients/companies in the off-grid lighting
sector to develop a private sector market for high-quality solar lanterns and kits that offer cleaner and safer off-grid lighting. The GoE intends
to diversify its reliance on hydropower by scaling up its solar, wind, and geothermal power generation capacity through public-private
partnerships (PPP) for power generation including private investments (independent power producers, IPPs). The WBG will provide IDA
guarantees for renewable energy IPPs, including solar projects under the 500-MW IFC Scaling Solar Initiative. IFC will also explore supporting
IPPs and MIGA will explore the use of guarantees for IPPs. Through an ESMAP grant, the WB also provides just in time analysis, data, and
site-specific wind resource measurements for areas considered promising for IPP development. The IDA Geothermal Sector Development
Project is supporting geothermal resource development in Ethiopia.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Population with access to Amount of energy generation installed Ongoing:
electricity (percentage) capacity from non-hydropower based WB Operations
Baseline: 25 (2016) renewable resources (MW) Elect. Network Reinforcement & Expansion,
Target: 50 (2021) Baseline: 150 MW (2016) ENREP (P119893)
Target: 700 MW (2021) ENREP Additional Financing (P155563)
Indicator 2: Electricity reliability: System Ethiopia Geothermal Development Project
Average Interruption Frequency Index in (P133613)
areas financed by WB project22 WB ASA
Baseline: 178 (2016) Electrification Strategy Review and Technical
Target: 89 (2019) Assistance for the IPP Reform Program (ESMAP)
IFC Advisory
Lighting Africa Ethiopia (600201)

22
Index is computed as average interruption per year within 100 km transmission-line distance.

50
 Planned:
WB Operations
Ethiopia Electrification Program (P160395)
Renewable Energy Guarantees Project
Guarantees (P162607)
IFC Advisory
Energy PPP – Ethiopia Scaling Solar (601584)
IFC Investments
Possible investments in IPPs

MIGA Guarantees
Possible guarantees for IPPs
CPF Objective 1.3: Improved agricultural productivity and commercialization
Intervention Logic
Agriculture is an important driver to boost inclusive growth, reduce poverty and narrow spatial disparities, particularly between rural and
urban areas; while meeting growing urban food demand and improving nutritional outcomes in rural and urban settings. Despite recent
growth in agricultural output, the sector is still characterized by low productivity as a result of low use of modern inputs, including improved
seed breeds, limited access to input and output markets and finance, and low availability of irrigation water and related climatic shocks.
Agro-processing and access to markets require improved connectivity and increased private investment in agro-processing and trade
logistics.

Addressing gender productivity disparities is essential for inclusive rural development. Providing women farmers with better access to
agricultural services and infrastructure, and developing technologies that are gender sensitive will likely have direct pay-offs for nutritional
outcomes in agricultural production. Under GTP II, the GoE has articulated a policy on agricultural development-led industrialization, aimed
at increasing agricultural productivity, with efforts to expand this policy to agribusiness development and incentives for private investment.
The WBG program of investments in productivity improvements is supporting improved public services for crop and livestock producers,
irrigation and drainage infrastructure, and development of value chains and marketing services. Productivity gains among smallholder
livestock producers will result in a reduction of GHG emissions per unit of product, thus contributing to achieving the communicated
Nationally Determined Contribution (NDC). IFC will continue building its portfolio in agriculture to improve access of livestock smallholder
producers and processors to quality inputs which includes support to reforms on licenses and permit requirements for key livestock inputs.
MIGA will continue to explore expansion of its current portfolio in the agribusiness sector to support GoE efforts to attract foreign direct
investment into the sector in Ethiopia.

51
 CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Increase in the yield index23 for Farmers/Agricultural producers reached Ongoing:
cereals/pulses24 (percentage) with assets and services25 (WBG) WB Operations
Baseline: 0 (2016) (number) Second Agricultural Growth Project (P148591)
Target: 21.8 (2021) Baseline: 188,000 (2016) Ethiopia Promoting Basic Services Program
Target: 1,905,000 (2021) Phase III Project (P128891)
Indicator 1.1: Increase in the yield index for Productive Safety Net Program (PSNP) 4
cereals/pulses in female-headed Female farmers reached with assets and (P146883)
households (percentage) services (WBG) (number)26 PforR Ethiopia Enhancing Shared Prosperity
Baseline: 0 (2016) Baseline: 39,000 (2016) Though Equitable Services (P151432)
Target: 22.9 (2021) Target: 683,000 (2021) Sustainable Land Management Project
(P133410)
Indicator 2: Increase in the yield index for Area provided with irrigation and Sustainable Land Management Project-II
selected animal products (percentage) drainage (hectares) (P133133)
Baseline: 0 (2016) Baseline: 3,000 (2016) ET-Irrigation and Drainage Project (P092353)
Target: 21.8 (2021) Target: 63,000 (2021) WB ASA
Ethiopia IE Women Agricultural Leaders
Indicator 2.1: Increase in the yield index for Reforms in the area of licenses and permit (P148635)
selected animal products in female-headed requirements for livestock inputs Review of Ethiopian Rural Roads Program
households (percentage) (veterinary drugs/vaccines and feed)27 (P161839)
Baseline: 0 (2016) (number) An Overview on the Functioning of Cereal
Target: 22.9 (2021) Baseline: 0 (2015) Markets in Ethiopia (P162453)
Target: 7 (2020) IFC Advisory and Joint with WB
Ethiopia Livestock MIRA (601053)

23
Yield index is calculated on the cereals subset of 13 crops under the AGP2 as a weighted sum of the yields of the cereals crops. The weight attached to each crop is the
proportion of land area sown to the crop out of total land allocated to the crops in the yield index.
24
Indicators 1-3 are measured for farming households directly benefitting from AGP2.
25
The indicator includes all farmers directly benefitting from assets and services provided under the WBG-financed operations.
26
This indicator includes all female farmers directly benefitting from assets and services provided under the WBG-financed operations.
27
Specifically, the reforms are aimed at reducing time and cost (by 43 percent) that will allow livestock farmers access inputs such as veterinary drugs/vaccines and feed,
and enable cost savings in the livestock sector of Ethiopia of about US$2.5 million.

52
 MIGA Guarantees
Africa Juice TSC (two guarantees) and Alvima
Import and Export PLC (one guarantee)
Africa Juice (two guarantees - Project ID 7879)

Planned:
WB Operations
Livestock and Fisheries Sector Development
Project (P159382)
IFC Investments
DAL Dairy (38045)
Luna Expn (37311)
Elfora Poultry (37497)
AfricaJUICE (659726)
Afriflora (800026)
IFC Advisory
Ethiopia Nespresso Coffee (601633)
Africa Improved Foods Ethiopia (601771)
MIGA Guarantees
Possible guarantees for agribusiness
CPF Objective 1.4: Improved connectivity and enhanced regional growth centers and secondary cities
Intervention Logic
More spatially equitable growth requires (i) improved connectivity between production centers and markets, both domestic and export;
and (ii) enhanced regional growth centers and secondary cities where industrial production and service provision take place. GTP II is
addressing connectivity constraints to competitiveness by supporting improved transport infrastructure and services and trade logistics. The
WBG, through projects that support the Government’s Road Sector Development Program, is helping to strengthen transport connectivity
and reduce travel times for businesses between productive areas and markets and processing facilities. The Expressway Development
Support Project is strengthening government’s capacity to construct and operate strategic road logistics corridors. The forthcoming Trade
Logistics Project will support infrastructure improvements; capacity building; and policy, regulatory, and administrative reforms to enhance
the performance of the Ethiopia-Djibouti corridor. IFC will continue providing advisory services to reduce export and import barriers, reforms
which are expected to yield savings to the private sector.

53
 Given the expected urbanization rate of about 5.4 percent a year in the coming decade, urban population growth represents a huge
opportunity to shift the structure and location of economic activity from rural agriculture to the larger and more diversified urban industrial
and service sectors. Well-managed urbanization to enhance regional growth centers and secondary cities could help to catalyze growth, job
creation, and prosperity for a growing number of Ethiopians. The SCD cites weak urban planning and land management as a binding
constraint to achieving the Twin Goals. Local governments below the regional level have limited capacity and autonomy, and municipal
finances are inadequate to fund urban development. The WBG will support the GPT II priorities of building capacity for improved urban
development, an integrated national and regional urban planning and implementation program, an integrated urban infrastructure and
services delivery program, and an urban finance development and management program.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Savings of journey time on Increased throughput of the Modjo Ongoing:
roads upgraded by WB-financed projects Logistics Hub (Tons per year) WB Operations
(percentage)28 Baseline: 617,156 (2016) ET-Local Govt Dev Project II (P133592)
Baseline: 0 (2016) Target: 1,000,000 (2021) Transport Systems Improvement Project
Target: 56 (2021) Score in the APA for institutional (P151819)
performance of participating ULGs, ET-Road Sector Development Program APL4
30
Indicator 2: Score in the Annual averaged across all cities (P106872)
Performance Assessment (APA) for Baseline: 65 (2016) ET-Transport Sector Project in Support of
achievement in urban infrastructure and Target: 80 (2020) RSDP4 (P117731)
service targets by Urban Local Road Sector Support Project (P131118)
Governments (ULGs), averaged across all Expressway Development Support Project
29
cities (P148850)
Baseline: 65 (2016) Trade Logistics Project (P156590)
Target: 80 (2020) Ethiopia Promoting Basic Services Program
Phase III Project (P128891)

28
Savings of journey time is calculated as a weighted average (based on road length) of the percentage difference between the original travel time and post-upgrade
travel time on roads which are important regional trade corridors and links being upgraded through WB-financed projects. It currently takes a total of 27 hours to travel
these roads which serve a population of 3.3 million: This will reduce to 11 hours on completion of the projects, a saving of 2 hours per 100km travelled. The total number
of beneficiaries including the Transport Systems Improvement Project, which improves urban roads, is 7.2 million.
29
The performance of ULGs ranges between 0–100. The percentage reflects the score based on performance data for achievement of urban infrastructure and service
targets.
30
In the areas of planning and budgeting, assets management, public financial management, procurement, own source revenue, accountability and transparency,
environment and social safeguards, land management, and urban planning. The performance of ULGs ranges between 0–100. The percentage reflects the score.

54
 Enhancing Shared Prosperity through Equitable
Services (P151432)
Pastoral Community Development Project III
(P130276)
WB ASA
Urban Policy Programmatic TA
IFC Advisory
Ethiopia Trade Logistic Project (599466)

Planned:
WB Operations
Urban Institutional and Infrastructure
Development Program (UIIDP)
Support to Road Sector Development Program
(P160863)
CPF Objective 1.5: New approaches for sustainable infrastructure financing and debt management adopted
Intervention Logic
Ethiopia needs new approaches to finance infrastructure through measures such as boosting tax revenues, increased private sector
involvement (including PPPs), greater selectivity and prioritization of investments, and improved public investment management. In the
power sector, in addition to generating sufficient power for domestic consumption, per GTP II objectives, the GoE is developing generation
capacity for export as a means to increase power sector revenues. It is estimated that electricity exports to Sudan, Djibouti, and Kenya could
boost Ethiopia’s annual export revenue potential to as much as US$500 million by the end of the decade. To support this objective, the WBG
is financing the Eastern Electricity Highway Project under the First Phase of the Eastern Africa Power Integration Program. The WBG is also
supporting a series of ASA to provide client-driven analysis and policy advice. In the energy sector, the WB is supporting the development
of IPPs though technical assistance as well as preparation of a renewable energy guarantee for Independent Power Producers (see 1.2.
above). This policy dialogue is anchored by the annual discussions and preparation of the Ethiopia Economic Update Series, and
complemented by policy advice on issues such as annual DSAs, which are produced jointly with the IMF, to monitor non-concessional
borrowing; and a tax study as part of the follow up to the PER Phase 2. As highlighted in GTP II, Ethiopia has decided to introduce PPP
financing for investments in infrastructure. The African Development Bank (AfDB), the UK Department for International Development (DFID),
and WBG are working together to support GoE in preparing a PPP Framework, establishing a PPP Unit, developing detailed implementation
procedures, and identifying/developing future projects. This will help to develop Ethiopia’s framework for PPPs and build the requisite
capacity to boost private investment in infrastructure and other sectors. The WBG will work with GoE to leverage private financial resources
to help close the infrastructure gap, and IFC will explore PPPs in infrastructure.

55
 CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Debt Management capacity PPP framework in place Ongoing:
increased Baseline: None (2016) WB Operations
Baseline: Government does not conduct Target: PPP legislation, PPP unit and WB ASA
and publish annual DSAs in compliance implementation manuals in place; Macroeconomic, Fiscal, and Debt Dialogue -
with international practice (2016) pipeline of projects identified (2021) Programmatic Knowledge Service
Target: Government conducts and ESMAP Energy Sector Review and Strategy
publishes annual DSAs in full compliance SOE fiscal risk assessment conducted and (P146616)
with international practice (2021) disseminated31 ESMAP Renewable Energy Resource Mapping
Baseline: No (2016)
Indicator 2: PPP project agreements /IPPs, Target: Yes (2020) Planned:
consistent with PPP framework, signed WB Operations
(number) Amount of electricity exported from Renewable Energy Guarantees Project IPF
Baseline: 0 (2016) Ethiopia to Kenya (GWh/Year) (P162604) and Guarantee (P162607)
Target: 5 (2021) Baseline: 0 (2016) IFC Advisory
Target: 2,978 (2020) Infrastructure PPP
IFC Investments
Possible investments in IPPs
MIGA Guarantees
Possible guarantees for IPPs
Focus Area 2: Building Resilience and Inclusiveness
Ethiopia has historically been vulnerable to climate shocks, especially droughts, and poor land management practices in the past aggravated
land degradation. In recent years, Ethiopia has made progress in addressing these issues through measures led by Government and
communities. GTP II has stressed climate-friendly initiatives such as reforestation, land rehabilitation through bench terracing and other
methods, and managing watersheds. With the support of WBG and other development partners, Ethiopia has implemented a large safety
net program to transform reliance on humanitarian food assistance and promote investments in human resilience through quality health,
water and sanitation services, and education outcomes. These safety net programs will improve the well-being of poor households and
support structural change. Despite these efforts, droughts are still causing humanitarian appeals. Moving forward the WBG will provide
support to develop disaster risk financing strategies and options to ensure future droughts have a less severe effect on the population.
Government programs will emphasize the millions of children who are not reaching their full potential because of inadequate nutrition, a
lack of early stimulation and learning, and exposure to stress. Finally, as Ethiopia is the second-largest host of refugees in Africa (after

31
The first assessment in 2020 is planned to be updated in the following years.

56
Uganda), accommodating over 800,000 refugees displaced by conflicts, political events, and civil wars in neighboring countries, support will
be provided to improve access to basic social services, expanded economic opportunities, and enhanced environmental management for
refugees and host communities.
CPF Objective 2.1: Improved sustainability and effectiveness of safety nets
Intervention Logic
Two types of vulnerabilities define opportunities for improving safety nets in Ethiopia. First, despite a significant decline in poverty rates
over the past decade, a large number of Ethiopians live in chronic poverty, and a significant percentage of the rural poor are dependent on
rain-fed agriculture and thus vulnerable to climate shocks. The Government has put in place a safety net in the most food-insecure areas,
which can be scaled-up in response to shocks such as drought, and recently launched a safety net program for urban areas. While evidence
shows that the Government’s safety net programs reduce poverty and protect people from shocks, these two safety net programs do not
reach all in need and require sustained public financing. Second, the scope of formal social protection is limited, and informal safety nets
are weak in urban areas. Urban poor and vulnerable are prone to (i) higher rates of poverty among urban elderly and disabled; (ii) high levels
of urban food insecurity; (iii) long and costly job-search processes in urban labor markets; and (iv) high rates of urban unemployment,
especially for women and youth. Women in urban areas are less likely to engage in the labor market, and more likely to work in less skilled,
informal and lower-paying jobs. Female labor force participation rates in urban Ethiopia are 13 percentage points lower than for males, and
female youth unemployment is particularly high (25 percent versus 15 percent for young men).

The GoE is building a harmonized, nationwide social protection system for poor and vulnerable groups to increase social protection coverage.
The existing system is extended to address vulnerability in the drought-prone highlands and pastoral lowlands, and unemployment and
destitution in urban areas. Within the framework of GTP II, the GoE has developed the Urban Food Security and Job Creation Strategy to
reduce poverty and vulnerability among 4.7 million urban dwellers living below the poverty line.

WBG operations support (i) establishing urban safety nets; (ii) improving the effectiveness of the Government’s safety net in rural areas,
including responsiveness to drought induced food insecurity; and (iii) supporting women-owned SMEs in targeted cities. Project
interventions in rural areas help to address rural poverty directly through transfers and livelihood support, and indirectly through the public
works that aim to transform the natural environment and invest in rural infrastructure. In urban areas, the WBG-financed operation helps
establish urban safety net mechanisms to improve incomes of poor urban households and access to livelihood opportunities.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Government funding to safety Beneficiaries of safety net programs Ongoing:
net programs (annual in USD) (number) WB Operations
Baseline: US$88 million (FY16/17) Baseline: 7,200,000 (2015) ET Productive Safety Nets Project 4 (PSNP 4)
Target: US$400 million (FY21/22) (P146883)

57
 Indicator 2: Average number of months of Target: 14,100,00032 (if a drought occurs) Urban Productive Safety Net Project (UPSNP)
rural household food insecurity (number of Female beneficiaries of safety nets (P151712)
months) (number) WB ASA
Baseline: 3.2 (2016) Baseline: 3,600,000.00 (2015) Support for DRM Framework, Ethiopia
Target: 2.0 (2021) Target: 4,387,456.00 (2020) (P146370)
Strengthening Implementation of the SP
Indicator 3: Proportion of Urban Safety Net Proportion of beneficiaries receiving Strategy (P156434)
Beneficiaries reporting an increase in regular payments within the agreed Sovereign Disaster Risk Financing (P160864)
household consumption as a result of the timeframe (percentage)
project (percentage) Baseline: 60 (2015) Planned:
Baseline: 0 (2017) Target: 90 (2021) WB Operations
Target: 80 (2021) Ethiopia Rural Safety Net Project (P161430)
Time taken from issuing a drought WB ASA
Indicator 3.1: Proportion of Urban Safety warning to identifying and agreeing on Programmatic TA on jobs
Net Beneficiaries reporting an increase in the number of people in need (number of Social protection systems programmatic review
household consumption as a result of the days) Disaster risk financing for Ethiopia
project, Female-headed households Baseline: 180 (2016)
(percentage) Target: 45 (2021)
Baseline: 0 (2017)
Target: 80 (2021)
CPF Objective 2.2: Improved equity and utilization of quality health services
Intervention logic
Significant progress has been made in improving access to primary health care services, particularly by the rural poor: child mortality and
nutrition outcomes have improved; the poorest have benefited; and basic services gaps such as antenatal care and reproductive health have
narrowed across income groups. Despite notable sector achievements, substantial inequities in access to quality health services remain,
both by geography and socio-economic groups. Lack of availability of services, especially for the bottom 20 percent, remains a constraint to

32
Beneficiaries of safety net programs include those who receive regular support for chronic poverty or food insecurity and those who receive support through the safety
net in response to transitory food insecurity arising from droughts. The highest figure during the CPF period will be considered when assessing progress towards this
indicator as a drought could occur in any year within the CPF period.

58
 health care utilization in some areas, leading to poor health outcomes. There are also persistent disparities in use and quality of health
services. Low-quality care will become an increasingly important constraint to improving health outcomes as access increases.

Government’s HSTP (2015-2020) focuses on quality and equity, with a commitment to reduce preventable maternal and child deaths by
addressing reproductive health issues more comprehensively and focusing on adolescents and other areas of the health system. The HSTP
includes goals to improve equity, coverage, and utilization of essential health services; improve quality of health care; and enhance health
sector implementation capacity at all levels of the system.
WBG operations address critical constraints by improving equity, utilization and quality of health services, particularly maternal and child
health care, in support of the HSTP.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Improved geographic equity in Deliveries attended by skilled birth Ongoing:
health service delivery outcomes, based on providers (percentage) WB Operations
Penta3 Vaccine33 indicator for the bottom Baseline: 27.7 (2016) (DHS 2016) Ethiopia Promoting Basic Services Program
20% of the lowest-performing woredas34 Target: 36 (2021) Phase III Project (P128891)
(percentage) Enhancing Shared Prosperity through Equitable
Baseline: 55 (2016) Per capita annual budgeted federal Services (P151432)
Target: 58 (2021) government block grant transfers to Ethiopia Health MDG Support Operation
regions, excluding Addis Ababa (Ethiopian (P123531)
Indicator 2: Proportion of women in rural Birr) Pastoral Community Development Project III
areas using a modern method of Baseline: 1,240 (FY2018) (P130276)
contraception (percentage) Target: 1,696 (FY2021) Ethiopia Water Supply, Sanitation and Hygiene
Baseline: 32 (2016) (DHS 2016) Project (P133591)
Target: 45 (2020) WB ASA
ET Improvement in Health Care (P157131)
Improving Services for the Bottom 40%
(P146931)
The Impact of CLTSH in Ethiopia (P150119)

33
Penta3 is the application of the Pentavalent vaccine (Diphtheria, Tetanus, Pertussis, Hepatitis B, and Haemophilus influenzae type b vaccines combined in one syringe)
to a child at 14 weeks. Targets include towns and data are for Ethiopian Fiscal Year (EFY) 2008 for the baseline and EFY2011 for the target which corresponds to the end
year of the Program.
34
A woreda is the commonly used Ethiopian name for a district; Ethiopia comprises approximately 1,000 woredas.

59
 Planned:
WB ASA
TBD
CPF Objective 2.3. Increased access to improved water and sanitation
Intervention Logic
The GPT II includes plans to (i) improve labor productivity in the non-agricultural sector which is reliant on improved access to water at the
household and enterprise level; and (ii) manage the urbanization process so as to avoid the potential stresses on existing water and
sanitation services that could result in negative impact on the environment and public health. Despite a major decrease in the proportion
of people openly defecating (from 92 percent in 1990 to 29 percent in 2015), 43 percent of those with access to toilets in 2015 used either
an unimproved or shared facility. Addis Ababa is the only Ethiopian city that has some sewer system, covering only 10 percent of the
residents. Unsafe water in rural areas poses risks to good health and nutrition, and improved access to water services will especially benefit
women who typically bear the burden of fetching water. GoE programs are focused on providing access to safe and sustainable water supply
and improved sanitation. WBG operations will support improvements in water and sanitation and contribute to the Government’s goal of
attaining 100 percent national potable water supply coverage and improving sanitation access during GTP II.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: People provided with access to Ongoing
basic (previously improved35) water sources WB Operations
(percent) ET-Urban WSS SIL (P101473)
Baseline: 61 (2016) ET-Urban WSS Additional Financing (P129174)
Target: 74 (2021) ET- Water Supply, Sanitation and Hygiene
(P133591)
Indicator 2: People with access to basic Ethiopia – Second Urban WSS Project
36
(previously improved) sanitation (percent) (P156433)
Baseline: 28 (2016) Productive Safety Net Program (PSNP) 4
Target: 40 (2021) (P146883)
WB ASA
Sustainable and Equitable WASH Services in
Ethiopia (P157690)

35
Drinking water from an improved source provided collection time is not more than 30 minutes for a roundtrip, including queuing. Improved sources include: piped
household connections (house or yard connections), public standpipes, boreholes, protected dug wells, protected springs and rainwater collection.
36
Private improved facility which separates excreta from human contact.

60
 Planned:
WB Operations
Rural WASH Project
CPF Objective 2.4. Improved basic education learning outcomes
Intervention logic
Significant progress has been made in improving access to education for the bottom 40 percent of population. The rapidly expanded
education system faces challenges in keeping children in school, especially for the bottom 20 percent for whom limitations on household
investments lead to low education outcomes. Drop-out rates at grade 1 continue to be high, and there are persistent disparities in access
to quality education services both across and within regions. While student learning outcomes have marginally improved at grades 4 and 8
in most subjects, the progress remains very slow (with gender disparities as well).

The government’s strategy -- Education Sector Development Program V (2015/16-2019/20) -- defines priorities for education including
capacity development for improved management; improve quality, access, equity and efficiency of general education; and increase access,
quality and relevance of TVET and higher education. WBG operations address critical constraints by improving quality and equity of pre-
primary up to 8th grade.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Students scoring at "below basic Completion rate at Grade 8 (percentage) Ongoing
proficiency" in English and mathematics Baseline: 54.3 (girls: 55.3) (2016) WB Operations
(NLA subject scores) (percentage) Target: 58 (girls: 58) (2021) Ethiopia Promoting Basic Services Program
Baseline: Phase III Project (P128891)
- Grade 4: English: 51.0 (girls: 54.2); Math: Grade 1-8 dropout rates (percentage) Enhancing Shared Prosperity through Equitable
35.63 (girls: 39.4) (2015) Baseline: 10.7 (girls: 10.8) (2014/15) Services (P151432)
- Grade 8: English: 23.4 (girls: 25.8); Math: Target: 6 (girls: 6) (2021) ET GEQIP II (P129828)
35 (girls: 37.7) (2015) African Centers of Excellence East/South -
Qualified G1-4 teachers (percentage) (P151847)
Target: Baseline: 72.3 (2015/16) WB ASA
- Grade 4: English: 41 (girls: 41) (2021); Target: 100 (2021) Improving Services for the Bottom 40%
Math: 26 (girls: 26) (2021) (P146931)
- Grade 8: English: 13 (girls: 13); Math: 25 ET-Higher Education Science and Technology -
(girls: 25) (2021) (P161655)

Indicator 2: Improved geographic equity in Planned:

education service delivery, based on Grade WB Operations

61
 8 completion rate for girls in the bottom GEQIP2 GPE2 grant - (P161060)
20% of the lowest-performing woredas GEQIP3 (P163050)
(percentage)37 GEQIP Additional Financing (P161060)
Baseline: 12.5 (2016) WB ASA
Target: 25.5 (2020) Ethiopia Education Sector Report
CPF Objective 2.5: Improved early childhood nutrition and early learning outcomes
Intervention Logic
Despite strong economic growth and substantial progress on human development indicators over the past decade, poverty remains high in
Ethiopia and the country ranks poorly on the UNDP Human Development Index. One reason for these persistent gaps is that millions of
young children are not reaching their full potential due to inadequate nutrition, a lack of early stimulation and learning, and exposure to
stress. These factors adversely affect physical, cognitive and socio-emotional capacity to learn, earn, and compete later in life. Among these
gaps, childhood stunting (with 38 percent of under-5 children stunted), and poor early learning, persist in Ethiopia. The bottlenecks include
high micronutrient deficiencies in children and pregnant/lactating women; malnutrition among women; high disease burdens especially
infections, diarrhea and malaria; insufficient access to health services, water and sanitation; climate risks such as drought; and a lack of early
child education.

Ethiopia is committed to the Early Years agenda to end child undernutrition by 2030 as stated in its Seqota Declaration and GPT II. GoE is
implementing the second donor-supported National Nutrition Program (NNP2). Ethiopia faces challenges in financing, implementing, and
coordinating the multi-sectoral programs, both within Government and with donors. The WBG portfolio, through the Health MDG PforR and
AF, the ESPES AF, the Second Agriculture Growth Project, and the forthcoming Livestock and Fisheries Development Project, contributes to
improving supply- and demand-side investments in nutrition and health by providing household food security support, nutrition/health
services, and investing in diversified and nutrition-rich crops and livestock products. In water and sanitation, the focus is on providing clean
water and reducing open defecation that increases the disease risks and lowers child nutrition outcomes. In education, WBG operations
contribute to parental engagement for early stimulation and school readiness programs, which remains a priority focus for the Education
portfolio and will be used in future interventions. The ESPES Program (through the forthcoming AF) will also help advance the Early Years
agenda in PSNP woredas by supporting nutrition, early child development (ECD) and pre-primary education.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Stunting prevalence in children Exclusive breastfeeding 0-6 months Ongoing
38 40
aged 0-23 months (percentage) (percentage) WB Operations

37
Targets include towns and data are for Ethiopian Fiscal Year (EFY) 2008 for the baseline and EFY2011 for the target which corresponds to the end year of the Program.
38
Baseline and target will be based on DHS data.
40
Baseline and target will be based on DHS data.

62
 Baseline: 28 (2016) Baseline: 58 (2016) Health MDG PforR (P123531)
Target: 18 (2020) Target: 68 (2021) Enhancing Shared Prosperity through Equitable
Services (ESPES) PforR (P161373)
Indicator 2: Children reached with early Iron deficiencies (anemia) in women age Pastoral Community Development Project III
learning and stimulation through WBG 15-45 (percentage)41 (P130276)
projects Baseline: 23 (2016) Urban Productive Safety Net Project (UPSNP)
TBD in 201839 Target: 19 (2021) (P151712)
Productive Safety Net Program (PSNP) 4
Dropout rate at Grade 1 (P146883)
Baseline: 17.9 (2014/15) Promoting Basic Services Program Phase III
Target: 13 (2021) Project (P128891)
Water Supply, Sanitation and Hygiene (WASH)
Open defecation (percentage of (133591)
population) Ag Growth Project AGP2 (P148591)
Baseline: 29 (2016) WB ASA
Target: 12 (2021) Sustainable and Equitable WASH services in
Ethiopia (P157690)
Yield index for vegetables/fruits
(number)42
Baseline: 67.42 (2016) Planned:
Target: 86.7 (2021) WB Operations
General Education Quality Improvement
Number of nutrition technologies Program Phase 2 – GPE (P161060)
promoted to public extension services Ethiopia General Education Quality
Baseline: 0 (2015) Improvement Project 3 (P163050)
Target: 80 (2021) ESPES Additional Financing (P151432)
Rural Productive Safety Nets PforR (P161430)
Urban Water and Sanitation Project (P156433)

39
This Early Years Initiative is an innovative approach to addressing stunting, cognitive deficits and maximizing human potential. The project will be prepared in 2018, and
the associated baseline and target values will be developed at that time.
41
Baseline and target will be based on DHS data.
42
For targeted farming households under Agricultural Growth Project 2. See footnote 2 on the yield index definition.

63
 Livestock and Fisheries Sector Development
(P159382)
CPF Objective 2.6: Increased access to services and job opportunities for refugees and host communities
Intervention Logic
Ethiopia hosts the second-largest refugee population in Africa accommodating over 800,000 refugees displaced by conflicts, political events,
and civil wars in neighboring countries including South Sudan, Somalia, Eritrea, Sudan and Yemen; the majority of whom live in camps near
the borders of their home countries. Internal conflicts in Ethiopia have displaced over 450,000 people (most of them living in situations of
protracted displacement) and an estimated 85,834 Ethiopians have sought refuge in other countries.

The Government has committed to move from encampment of refugees to gradual socio-economic inclusion. The WBG will work with
development partners (UNHCR and bi-laterals) to support this GoE policy shift within a medium-term perspective, starting with support for
a Jobs Compact operation to create economic opportunities for refugees and host communities. The World Bank will continue to support
local woreda governments to increase basic social services, expanded economic opportunities, and enhanced environmental management
for both refugees and host communities.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Beneficiaries with access to Government strategy to improve access Ongoing:
social and economic services and to services and job opportunities for WB Operations
infrastructure (million) refugees adopted and its implementation Regional Operation on Development Response
Baseline: 0 (2017) on-going to Displacement Impacts Project (DRDIP)
Target: 1.2 (2021) Baseline: No (2017) in the Horn of Africa (P152822)
Target: Yes (2021) WB ASA
Indicator 2: Work permits issued for Support to an approach to developing jobs in
refugees (number) Ethiopia including a certain percentage for
Baseline: 0 (2017) refugees (P162987)
Target: 30,000 (2021)
Planned:
WB Operations
Jobs Compact Program
WB ASA
TBD
CPF Objective 2.7: Enhanced management of natural resources and climate risks
Intervention Logic

64
 High rates of forest depletion and land degradation in Ethiopia aggravate water stress, limit economic performance, and undermine
resilience at the national and household levels. In Ethiopia less than 1 percent of land cultivated by smallholders, who produce over 95
percent of total agricultural production, is irrigated. In areas lacking shallow groundwater, development/expansion of low-cost, small-scale
irrigation solutions is desperately needed. Forest depletion is driven by fuelwood demand, unsustainable extraction, and agricultural
expansion. Insecure land tenure and unplanned land use are factors in reduced investment in land resources, which can exacerbate climate
and disaster risks and further aggravate water stress.

The GoE is focused on building a “climate-resilient green economy” to ensure environmental sustainability amid rapid economic growth; to
protect and develop natural resources including land, soil, water, and trees (forests, woodlands, farms); and reduce climate risks, generate
jobs and growth, and reduce emissions.

While recent investments in sustainable land and water management, watershed restoration, land tenure, and roads have helped to reverse
these trends, further investments are needed. WBG operations will continue to support increased resilience to drought and flooding,
improved natural resource and forest management, and introduce technologies and policies that reduce climate and disaster risks and land-
based carbon emissions.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Total area with sustainable GHG emissions avoided and sequestered Ongoing:
43
land management practices (hectares) under WBG operations (metric tons) WB Operations
Baseline: 444,643 (2016) Baseline: 15,000 (2014) Second Sustainable Land Management Project
Target: 1,500,000 (2021) Target: 9,020,167 (2021) (P133133)
Second Sustainable Land Management Project
Indicator 2: Total area Households who have received second- (GEF)(P133410)
reforested/afforested (hectares) level land holding certificates44 (number) Second Agricultural Growth Project (P148591)
Baseline: 504,480 (2016) Baseline: 260,028 (2016) ET-Irrigation and Drainage Project (P092353)
Target: 910,000 (2021) Target: 500,000 (2021) AFCC2/RI-Regional Pastoral Livelihoods
Resilience Project (P129408)
Forest area brought under management ET Productive Safety Nets Project 4 (PSNP 4)
plans (hectares) (P146883)
Baseline: 0 Clean Cooking Energy Program (P153425)
Target: 100,000 (2021) REDD+ Readiness (P124074)

43
Directly influenced by WBG operations.
44
Second-level certification provides additional spatial (i.e., location and boundary) data in the form of a parcel map.

65
 WB ASA
Resilience of the Ethiopian Road Network -
(P159936)
Country Environmental Analysis (CEA)
(P150733)
Safety of Dams (P160390)
Climate Resilient Green Economy Facility
Programmatic ASA (P146290)
Multi-Sector Investment Planning for Climate
Resilience Project (P158987)
IFC Advisory
Lighting Africa Ethiopia (600201)
Ethiopia Nespresso Coffee (601633)

Planned:
WB Operations
Oromia Forested Landscape Program (P151294,
P156475)
IFC ADVISORY
Commercial Forestry Study
FOCUS AREA 3: SUPPORTING INSTITUTIONAL ACCOUNTABILITY AND CONFRONTING CORRUPTION
Overall demand for government accountability in Ethiopia is rising, notwithstanding historical traditions of deference to hierarchies and the
“top-down” style of governing. While the Government has established several formal feedback mechanisms at local levels and for specific
services, much more investment in accountability and transparency mechanisms is needed. To reduce corruption and engage citizens in
decision-making, citizens’ voices must be promoted and engaged, consistent with the democratization objectives articulated in GTP II. The
CPF program will invest in accountability and transparency mechanisms at local levels, continue to support initiatives to increase capacity
and improve governance in service delivery as well as projects that strengthen government systems for CE. It is also essential to generate
and disseminate information on ‘what works.’ The WBG will support improved data collection at all levels of government by strengthening
the capacity of the Central Statistical Agency, which will enable monitoring of progress against development objectives, dissemination of
results, and inform evidence-based policy-making.
CPF Objective 3.1: Increased capacity and improved governance in service delivery
Intervention Logic

66
 Ethiopia has instituted reforms to reduce corruption among civil servants, which is particularly important as service delivery is decentralized.
According to Transparency International’s annual Perceptions of Corruption Index, Ethiopia was ranked 103rd out of 175 countries in 2015
(an improvement over 2007, when Ethiopia was ranked 138th out of 175 countries). Greater scope is needed for citizens to hold government
entities accountable. Efforts have also been made to engage citizens in decision making at lower levels of government, such as the district
level. Citizens’ voices must be amplified and engaged, in line with GTP II commitment to strengthen the democratization process. Improved
data collection at all levels of government, by enhancing the capacity of the Central Statistical Agency, will enable monitoring of progress
against development milestones, dissemination of results, empowering citizen groups in the social accountability process, and informing
evidence-based policy-making.

Government systems, such as procurement, internal audit, accounting and reporting systems, environmental, social and financial oversight
require further strengthening. GTP II includes plans to implement capacity-building programs in support of development and good
governance goals. The WBG is supporting enhanced fraud- and corruption-prevention structures at the woreda level by placing Ethics and
Anti-Corruption Officers in all basic sector offices, as well as working to strengthen the PFM system at all levels to enhance governance and
service delivery. GTP II includes plans to modernize the country procurement system by implementing an e-procurement system under its
good governance theme. The World Bank is supporting implementation of the e-procurement system through the PFM project.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Contracts awarded using E-Government Procurement System Ongoing:
competitive open procurement methods in developed and installed at Federal Public WB Operations
targeted agencies (percentage) Procurement and Property Administration Ethiopia Enhancing Shared Prosperity
Baseline: 50 (2016) Agency and in targeted agencies at (P151432)
Target: 75 (2021) Federal level, in number of agencies Ethiopia PFM Project (P150922)
Baseline: 0 (2016) ET-Promoting Basic Services Phase III (P128891)
Indicator 2: PFM Benchmarking Rating Target: 6 (2021) WB ASA
45
System established in all regions Managing Public Resources for Improved
Baseline: 0 (2016) Rolling out of the new Chart of Accounts Service Delivery (P157030)
Target: 11 (2020) at the Federal Level to facilitate Gap Identification in Construction (P159531)
expenditure execution and reporting by
Program Based Budgeting (PBB) (number Planned:
of federal entities) WB Operations
Baseline: 0 (2017) ESPES Additional Financing (P151432)
Target: 125 federal entities (2021) WB ASA

45
There are a total of 11 regions in Ethiopia.

67
 Improving Service Delivery in Selected Public
Enterprises (subtask 5 of P157030)
CPF Objective 3.2: Strengthened citizen engagement and holding government entities accountable
Intervention Logic
The GoE recognizes that CE can improve development outcomes. GTP II features a strategic pillar devoted to building “democratic and
developmental good governance” and enhancing the capacity of public institutions so as to promote “actively engaging the citizens.”
Increasing the involvement of women in feedback mechanisms is noteworthy given the underrepresentation of women in all levels of
decision-making in Ethiopia. Notwithstanding progress in creating awareness among service providers and citizens’ representatives of their
entitlements and service standards, developing basic skills for monitoring service provision, and promoting a culture of budget transparency
and accountability, the scope of the ongoing social accountability program needs to be expanded and deepened. Fiscal transparency and
accountability should also be enhanced to enable citizen participation in budget allocation and monitoring of its implementation, and
grievance redress mechanisms need to be strengthened as well. More sustainable monitoring and managing of social and environmental
risks requires increased capacity at all levels of government to monitor and safeguard the well-being of groups affected by government
policy, especially in the context of resettlement.

The World Bank will support interventions to deepen implementation of social accountability in participating woredas by extending the
program to new kebeles (villages) and new districts, promoting broader coverage beyond basic service delivery sectors, and enhancing
harmonization and synergy between various facets of CE, namely social accountability, financial transparency and grievance redress
mechanisms. In promoting existing programs and innovations in CE, the World Bank will work with GoE to introduce sustainability
arrangements that underscore the importance of ensuring public participation for better governance. The World Bank will also support
policy dialogue to promote the elaboration of a comprehensive CE strategy.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Woredas in which pre-budget Woredas screening projects for their Ongoing:
discussions were conducted, with environmental and social effects WB Operations
improved % of female participants Baseline: 0 (2016) ET-Promoting Basic Services Phase III -
(percentage) Target: 500 (2021) (P128891)
Baseline: 36% of woredas and 46% female ET PBS Social Accountability Program II -
participants (2016) Regions and City Administrations with (P129534)
Target: 60% of woredas and 50% of female functioning Grievance Redress ET-Enhancing Shared Prosperity through
participants (2021) Mechanism (GRM) offices at the regional Equitable Services (P151432)
level and in at least 90% of woredas with WB ASA
Indicator 2: Woredas in which Social clear working and reporting procedures Mainstreaming CE in World Bank Operations
Accountability Implementing Partners (P157213)

68
(SAIPs) facilitate the use of social (number of Regions and City
accountability tools (number of woredas) Administrations) Planned:
Baseline: 223 (2016) Baseline: 6 (2015) WB Operations
Target: 500 (2021) Target: 11 (2021) Ethiopia Social Accountability Program III
(ESAPIII)
Woredas in which Action Plans for Service WB ASA
Delivery Improvements have been Policy and technical dialogue to support a CE
adopted and are under implementation strategy
following completion of a Social
Accountability cycle at Woreda level
(number)
Baseline: 0 (2016)
Target: 450 (2021)
CPF Objective 3.3: Improved domestic statistical capacity for enhanced evidence-based policy making and monitoring
Intervention Logic
As Ethiopia continues to implement structural reforms, it will need greater capacity to monitor and manage downside risks, and assess the
impact of policy reforms and adapt strategies as needed. Data challenges, such as the lack of poverty data since 2010/11, must also be
addressed, in order to track and analyze progress on poverty reduction. GTP II calls for improved high-quality data collection systems at the
CSA and the use of such data in planning and policy analysis as part of the Second National Statistical Development Strategy. This Strategy
includes plans for improved generation of high-quality data and statistics, strengthening the national M&E system, and institutional capacity
building. Through the Ethiopia Statistics for Results Project, the WBG is supporting capacity building of the CSA and other government
agencies to produce, disseminate, and increase access to timely and reliable data. It is also supporting transparency of government data
through technical assistance to Ethiopia’s Open Data Initiative. The Additional Financing for the ESPES project that is currently being
prepared will include a component on statistical capacity building.
CPF Objective Indicators Supplementary Progress Indicators WBG Program
Indicator 1: Timeliness of statistics Frequency of poverty data Ongoing:
produced Baseline: Poverty data collected every 5-6 WB Operations
Baseline: 67% execution rate of the annual years (2016) Ethiopia Statistics for Results Project (P147356)
statistical release calendar (2016) Target: Poverty data collected every 3 LSMS-ISA Ethiopia Rural Socioeconomic Survey
Target: 90% execution rate of the annual years (2021) (P125475)
statistical release calendar (2021) Additional Financing LSMS-ISA Ethiopia Socio
Access to National Open Data (P155828)

69
 Indicator 2: Ethiopia’s score on the Baseline: The Government has launched Ethiopia: Supporting Open Data Initiative
Statistical Capacity Indicator46 its National Open Data Portal (2016) (P156400)
Baseline: 70 (2016) Target: Anonymized census and survey WB ASA
Target: 80 (2021) microdata available through the National Ethiopia Poverty, Gender and Statistics
Open Data Portal (2021) (P143792)
Managing People, Structures and Systems
(P159333)
Improving Service Delivery (P159947)

Planned:
WB Operations
Statistics component under the Enhancing
Shared Prosperity (ESPES) Additional Financing
(P151432)
AF for Ethiopia Statistics for Results Project
(P163226)
WB ASA
Programmatic Poverty, Jobs and Employment
AA

46
The Statistical Capacity Indicator is an index (on a scale of 0-100) published annually by the WBG for developing countries to track progress towards statistical capacity.
It comprises 25 indicators which are categorized into three dimensions: statistical methodology, source data, and periodicity and timeliness. A composite score for each
dimension is calculated based on specific criteria using information from the World Bank, IMF, UN, UNESCO and WHO.

70
 ANNEX 2: COMPLETION AND LEARNING REVIEW (CLR)

COMPLETION AND LEARNING REVIEW (CPS CLR) FY 2013-2016

CPS August 29, 2012, Report No. 71884-ET

CPSPR October 17, 2014, Report No. 90893-ET

INTRODUCTION

1. This Completion and Learning Review (CLR) is a self-evaluation by the Ethiopia country team
of results under the World Bank Group47 (WBG) Ethiopia Country Partnership Strategy (CPS) during
the period FY13-16 (Report No. 71884-ET), as updated by the Ethiopia CPS Progress Report (CPSPR,
Report No. 90893-ET). The CPS was aligned with Ethiopia’s Growth and Transformation Plan (GTP),
the articulation of Government’s vision for structural transformation. The CPS was centered on two
pillars: 1) Fostering Competitiveness and Employment; and 2) Enhanced Resilience and Reduced
Vulnerabilities; with a cross-cutting Foundation of Good Governance and State Building.

2. The CLR rates the Development Outcomes of the CPS (the extent to which the CPS achieved
stated objectives) and WBG performance (design and implementation of the CPS program). The CLR
uses the Results Framework, as updated in the CPSPR, to evaluate CPS achievements. The Results
Framework included a total of 18 outcomes, which were measured by 26 outcome indicators. This is
not an assessment of Ethiopia’s progress towards its development goals, but rather of program
achievements directly linked to WBG-supported activities and to WBG engagement in Ethiopia during
the CPS period.

3. Overall performance of the CPS program (FY13-16) is rated as Moderately Satisfactory.48

More than 80 percent of CPS Strategic Objectives were either Achieved or Mostly Achieved: this is an
aggregate measure of progress toward achieving CPS outcomes. Results under Pillar 1 – Fostering
Competitiveness and Employment – were Moderately Satisfactory, reflecting effective support to
objectives of macroeconomic stability, increased competitiveness and productivity, delivery of
infrastructure, and enhanced regional integration. Significant impact was noted for Pillar 2 – Enhanced
Resilience and Reduced Vulnerabilities -- where results in improved delivery of social services and
social protection and risk management were also rated as Moderately Satisfactory. Progress toward
the Foundation – Good Governance and State Building – was rated as Moderately Satisfactory,
reflecting outcomes in public service performance management; enhanced space for citizen
participation; and improved public financial management, procurement, transparency and
accountability.

4. The CLR was informed by discussions with stakeholders and a review of Bank documents. In
addition to meetings with the Addis-based country team, Government of Ethiopia (GoE) counterparts,
Development Partners (DPs), private sector representatives, and civil society, this CLR is based on Bank
documents such as Project Appraisal Documents (PADs), Implementation Status Reports (ISRs),
Implementation Completion Reports (ICRs), IEG ICR evaluations (ICRRs), and the Systematic Country
Diagnostic (SCD).

47
In this report, the World Bank Group constitutes the World Bank (Bank), the International Finance
Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).
48
This report follows guidelines issued jointly by the Operations Policy and Country Services unit and the IEG in
December 2014 with respect to rating methodology and categories.

71
5. WBG performance in designing and implementing the strategy was rated as Good. This
reflects both design of the CPS, as aligned with the GTP; as well as implementation of the CPS, as
evidenced by strong delivery of IDA; significantly scaled-up IFC investments; and lending
complemented by a large trust fund program. The WBG also showed proactivity in fine-tuning its
support at the time of the CPSPR. Mid-course adjustments included preparation of analytical work
related to macroeconomic management, the shift from investment lending to the PforR instrument,
a robust response to drought-related food insecurity, and incorporating elements of the Inspection
Panel investigation report for PBS3 to support enhanced citizen engagement and social accountability.
That said, the Results Framework featured a number of overly ambitious goals and indicators that
were not sufficiently specific, measurable or time-bound, which resulted in partial progress towards
the achievement of 2 of 18 CPS outcomes. This CLR points to lessons learned and ways in which the
WBG can have greater impact going forward: the importance of analytical work in areas of reform for
which the Government does not wish to borrow from the Bank; the objectives and indicators of the
Results Framework; an emphasis on the quality of services delivered (rather than focusing solely on
access to services); and the need for greater emphasis on identifying and mitigating risks.

6. IDA delivered a robust lending program of US$5.96 billion during the CPS period, including a
US$75-million contribution to regional projects, US$165 million in Trust-Funded activities, and a
timely response to severe drought at the very end of the CPS period. Ethiopia was the second-largest
borrower of IDA funds in FY2016 (after Bangladesh) with a record commitment of US$1.78 billion, and
cumulative IDA commitments of US$7.1 billion as of June 30, 2016, not including US$1.1 billion in trust
fund commitments.

7. IFC scaled up its engagement over the CPS cycle, through investments and advisory services,
contributing substantially to progress towards WBG targets. In July 2012, IFC had active investments
in the agriculture (coffee), finance (leasing), and mining and manufacturing (cement) sectors
amounting to US$70.3 million committed and US$60.7 million outstanding. New investments during
the CPS period spanned agribusiness, food and beverages, trade and tourism. As part of its short-term
trade finance investments, IFC committed US$325 million to the Ethiopia program between FY14 and
FY16. In November 2013, IFC commenced a short-term trade finance program called GTST Ethiopia,
with other lenders, through which IFC funded a facility of up to US$350 million in favor of Vitol Bahrain
E.C., to supply petroleum products to Ethiopia. IFC’s new long- and short-term commitments during
the CPS period reached US$411.7 million, of which US$402.3 million was through its own account and
US$9.4 million was mobilization. At end-FY16, IFC's net active investment portfolio had grown to
US$153.1 million committed and US$126.0 million outstanding. Investments during the CPS period
account for 85 percent of cumulative investments in the country. This scale-up demonstrates effective
support to CPS objectives, and a fully coordinated “One WBG” approach to supporting private sector
development in Ethiopia.

8. This approach will continue under the CPF, as IFC plans to continue deepening its
engagement in Ethiopia through advisory and investment services. IFC has a strong pipeline of
investment projects in agriculture (Poultry/Dairy/Animal Production, Grains and Flowers) and
manufacturing (Cement, Glass Products); and will seek advisory and investment opportunities in
energy and transport through PPPs, SME-related advisory, and other instruments.

COUNTRY CONTEXT

9. Ethiopia achieved a remarkable trajectory of economic growth between 2004 and 2014, as
real GDP growth averaged 10.9 percent per year. Taking account of the 2.4 percent population
growth rate, real per capita GDP growth averaged 8.0 percent per year. Growth was accompanied by
a substantial decline in poverty, from 55 percent in 2000 to 33 percent in 2011, according to the

72
international poverty line of US$1.90 per day. Life expectancy increased from 51.9 years in 2000, to
62 years for males and 66 years for females in 2014.49

10. GTP focused on a stable macroeconomic framework, provision of quality infrastructure and
social services, and good governance and democratization. It was the first in a series of six five-year
strategic plans intended to transform Ethiopia into a lower middle-income country by 2025.

CPS PROGRAM PERFORMANCE

11. Overall progress toward CPS program objectives is rated as Moderately Satisfactory. Ratings
for individual outcome indicators are listed in Table 1, and in the Results Matrix (see Annex 1). These
ratings reflect the strategic objectives and indicators in the CPS Results Framework, some of which
were overly ambitious and subject to changing country circumstances during the CPS period. These
ratings do not fully capture the impact of the WBG engagement in Ethiopia during this four-year
period, or the degree to which the Bank is viewed as a trusted partner by Government and a valued
player by DPs. The team acknowledges the shortcomings of the Results Framework; and that they
could have undertaken more of a “mid-course correction” at the time of the CPSPR – and revised the
Results Matrix accordingly -- to account for changing circumstances, limited progress towards
indicators, and the need for greater risk management and mitigation measures. These lessons will be
reflected in the CPF Results Framework.

49
Ethiopia’s Great Run: The Growth Acceleration and How to Pace It, World Bank Group, 2015.

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12. The majority of objectives under Pillar 1 of the CPS – Fostering Competitiveness and
Employment -- were either achieved or mostly achieved; consequently, the rating for Pillar 1 is
Moderately Satisfactory. Under Pillar 2 – Enhanced Resilience and Reduced Vulnerabilities – the
majority of objectives were either achieved or mostly achieved, yielding a rating of Moderately
Satisfactory. For the Foundation – Good Governance and State Building – the three objectives were
either achieved or mostly achieved, resulting in a rating of Moderately Satisfactory.

Table 1: Rating of Strategic Objectives and Indicators

Strategic objectives and indicators Rating

PILLAR 1: FOSTERING COMPETITIVENESS AND EMPLOYMENT MS
Strategic Objective 1: Stable Macroeconomic Environment A
Outcome 1.1 – Structural and macroeconomic policies are conducive to sustain A
internal and external balances
Outcome 1.2 – Increased domestic resource mobilization A
Strategic Objective 2: Increased Competitiveness & Productivity A
Outcome 2.1 – Increased agriculture productivity and marketing in selected areas A
Outcome 2.2 – Increased competitiveness in manufacturing and services MA
Outcome 2.3 – Increased MSE access to financial services A
CPS Strategic Objective 3: Increased and Improved Delivery of Infrastructure MA
Outcome 3.1 – Increased access to electricity A
Outcome 3.2 – Improved roads, transport infrastructure MA
Outcome 3.3 – Increased access to improved water and sanitation services in urban MA
and rural areas
CPS Strategic Objective 4: Enhance Regional Integration PA
Outcome 4.1 – Improved Eastern Africa Power Pool Mechanism PA
Outcome 4.2 – Enhanced involvement in regional agriculture technology PA
generation and dissemination
PILLAR 2: ENHANCED RESILIENCE AND REDUCED VULNERABILITIES MS
CPS Strategic Objective 5: Improved Delivery of Social Services MA
Outcome 5.1 – Increased access to quality health services MA
Outcome 5.2 – Increased access to quality education MA
CPS Strategic Objective 6: Comprehensive Social Protection and Risk Management A
Outcome 6.1 – Enhanced resilience of vulnerable households to food insecurity A
Outcome 6.2 – Increased adoption of disaster risk management systems MA
Outcome 6.3 – Sustainable natural resource management and resilience to climate A
change
FOUNDATION: GOOD GOVERNANCE & STATE BUILDING MS
Outcome 7.1 – Improved public service performance management and MA
responsiveness
Outcome 7.2 – Enhanced space for citizen participation in the development process MA
Outcome 7.3 – Enhanced public financial management, procurement, transparency A
and accountability
Note: A - Achieved; MA – Mostly Achieved; MS – Moderately Satisfactory; PA – Partially Achieved;

74
Pillar 1: Fostering Competitiveness and Employment

13. WBG support to Strategic Objective 1 -- Stable Macroeconomic Environment -- was

delivered through two interventions, the macroeconomic and fiscal dialogue (programmatic), and
the Second Urban Local Government Development Program (ULGDP2 – P133592). Analytical work
supported the economic policy dialogue with GoE, including four economic updates -- covering
exports and competitiveness, trade logistics, constraints in the manufacturing sector, national savings,
and projections on how to achieve middle-income status -- along with a Public Expenditure Review
(2015), and an analysis of the sustainability of the growth model (“Ethiopia’s Great Run”, 2015). These
knowledge products have been highly appreciated by the GoE as well as DPs. IDA commitments to
operations and analytical work in this area totaled US$380 million.

14. Progress towards macroeconomic stability was robust in spite of Ethiopia experiencing the
worst drought in five decades. Outcome indicator 1.1 set a target of single-digit inflation, and the
annual CPI inflation rate declined from 22.77 percent in 2012 to 7.39 percent in 2014. Drought effects
caused a reversal of inflation trends in 2015: the CPI climbed to 10.4 percent in June 2015, and to 11.8
percent in October 2015. While inflation eased to 10.2 percent in January 2016, food prices remained
a major driver of inflation; by end-June 2016, inflation had eased to 7.5 percent. Also under Outcome
1, establishment of the Macroeconomic Discussion Forum facilitated discussion of macroeconomic
issues between the GoE and DPs (World Bank, IMF, AfDB and bilateral partners of the Bank). However,
there was no progress towards creating a database to monitor off-budget investments and contingent
liabilities in public enterprises during the CPS period, largely due to insufficient client demand.

15. An intensive dialogue on debt and debt-related issues was an instrumental part of the
macroeconomic and fiscal engagement. The Bank, together with the IMF, published a Debt
Sustainability Analysis each year of the CPS period. In 2013, IDA established an annual non-
concessional borrowing (NCB) limit, which further highlighted the debt dialogue. The Bank engaged
with the Government to respond to the significant increase in NCB, particularly those loans
undertaken in FY13 and FY14. Government’s NCB totaled US$5.8 billion and US$2.9 billion in FY13 and
FY14, respectively. NCB fell to US$1.1 billion in FY15 and US$0.775 billion in FY16, reflecting a
significant constraining trend; the NCB limit agreed for FY17 was US$400 million, in line with the trend
of declining NCB. According to GoE, this is the result of a strict focus on containing NCB at the highest
levels of Government, where the Ministry of Finance and Economic Cooperation is working to enforce
NCB restraint. Ethiopia has also made efforts to strengthen its debt management capacity, an area in
which the Bank’s Technical Assistance has played a key role.

16. The outcome indicator for increased domestic resource mobilization achieved nearly twice
the target set by the CPSPR. Under ULGDP2, the number of urban local governments (ULGs) that
achieved an increase in their own-source municipal revenues (over the previous year) reached 34 out
of 44 participating entities, nearly double the target of 18 ULGs. The November 2015 ULGDP2 mission
found that two cities -- Jijiga and Dire Dawa -- had funded between 55 and 60 percent of their capital
investment plans with own revenue. That said, ULGDP2 recorded mixed progress toward conducting
exhaustive potential revenue analyses and translating strategies into action.

17. IDA commitments to projects contributing to CPS Strategic Objective 2 -- Increased

Competitiveness and Productivity -- totaled US$474 million. WBG support was delivered through five
interventions: Agricultural Growth Program (AGP – P113032), Private Sector Development Capacity
Building Project (PSDCBP – P050272), Competitiveness and Job Creation Project (CJCP – P143302),
Women Entrepreneurship Development Project (WEDP – P122764), and IFC's investment in the Derba
Midroc Cement Company.

75
18. There was significant progress towards increased agricultural productivity and marketing,
as both the yield per hectare (ha) and value of marketed products were nearly double the CPS
targets. Yield per ha increased from 16.4 tons in 2012 to 28.4 tons in 2015,50 linked to increased
investment in agricultural extension and crop management practices, notably the national campaign
for row planting of teff and wheat (supported, in part, by AGP). The value of marketed agricultural
products at the household level also rose sharply above the CPS target. The end-of-project evaluation
completed for the marketing component of AGP (conducted by USAID) finds the benefit of AGP equal
to approximately 3,150 Ethiopian Birr (ETB) per beneficiary since 2011 -- more than twice the CPS
target for households. This objective was further supported by dissemination of new and existing
agricultural technologies under the East Africa Agricultural Productivity Project (P112688) (see para.
31).

19. Performance against Outcome 2.2 -- increased competitiveness in manufacturing and

services -- was mixed. While there was good progress toward the first indicator (creation of more
than 12,000 jobs toward the target of 15,000 jobs), there was no progress toward the second indicator
(export share of total goods and services generated by firms located in supported Industrial Zone (IZ)).
This latter target, introduced in the CPSPR, is linked to the Competitiveness and Job Creation Project
(CJCP), which only became effective on August 4, 2014. This allowed less than two years in which to
meet the target, which was insufficient time to generate improvements in the export component of
sales by supported firms. Weak progress also reflects developments at the national level, where
export levels fell to a ten-year low. Goods exports lagged during the CPS period due to both volume
and price effects, an appreciating real (effective) exchange rate (REER), and declining exports to China,
Ethiopia’s major export destination since 2004. The REER has appreciated, cumulatively, by 84 percent
since the nominal devaluation in October 2010, which has further weakened export performance.
During the CPS period, WBG prepared analysis on the role of the exchange rate in achieving structural
transformation, and the mechanics of adjusting the current rate. WBG will support additional
technical analysis under the CPF, subject to Government demand.

20. There was strong progress toward Outcome 2.3 -- increased MSE access to financial services
-- as credit lines to MSEs went from nil to US$43 million against a target of US$28 million. While this
increased access to credit is commendable, it has not resolved the challenge of inadequate access to
financial services for MSEs. Excessively high collateral requirements continue to discourage MSEs from
applying for loans, and overall access to financial services remains highly limited across Ethiopia with
only 1.97 commercial bank branches and 0.33 ATM per 100,000 adults (compared to, for example,
Kenya where there are 5.17 commercial branches and 9.46 ATMs per 100,000 adults). Further
progress requires additional support from WBG, which will continue to be provided through the Small
and Medium Enterprise Finance Project, P148447 (approved by the Board on May 17, 2016).

21. Notable progress was recorded in the case of WEDP, which surpassed most of its targets and
objectives. More than 4,000 women entrepreneurs gained access to loans, and more than 7,000
women participated in business training. The profits of participating female enterprises grew by 24
percent in the first year of WEDP, and loan-repayment rates stand at 99.4 percent, although 62
percent of WEDP borrowers had never previously taken out a loan.

22. IDA support to CPS Strategic Objective 3 – Increased and Improved Delivery of Infrastructure
in Ethiopia – was provided through seventeen interventions (listed in Table 2 below) for a total of

50
Due to the extension of closing date for AGP the end of project sample survey has not been completed. As a
proxy, CSA official data applied to the index constructed by IFPRI for AGP, and limited to those regions under
AGP, was used.

76
nearly US$4.8 billion in IDA commitments. Progress toward this objective during the CPS period was
rated as Mostly Achieved.

23. The number of additional people with access to off-grid electricity services increased during
the CPS period from 132,615 to 3,379,085 --more than 13 times the CPS target of 250,000. This was
achieved, in large part, due to the Electricity Network Reinforcement and Expansion Project (ENREP –
P119893), which provided off-grid electricity services to 3,157,776 people through solar-powered
lanterns5. Increased access to electricity was measured as “people provided with access to electricity
in selected areas” and supported by three Specific Investment Loan (SIL) operations totaling US$776.1
million. An US$8-million Global Partnership for Output-Based Aid (GPOBA) grant also helped to
finance connection costs. At the time of the CPSPR, the outcome indicator target was adjusted
downward to reflect results attributable to IDA-funded projects, as follows: from an additional 12
million people connected to on-grid services and an additional 43.5 million people connected to off-
grid services, to 1.7 million additional people with access to grid electricity and 250,000 additional
people with access to off-grid electricity. Since the CPSPR, progress toward expanded access to on-
grid electricity services slowed down, with a total of 1,586,985 additional people gaining access to on-
grid electricity services.

Table 2: Projects Supporting Outcomes under CPS Strategic Objective 3

Project number, name of intervention Commitment

amount (US$
million)
P076735 Ethiopia Water Supply and Sanitation (EWSS) 291.7
P091077 Road Sector Development Project III (RSDP3) 225
P096323 Tana & Beles Integrated Water Resources Development Project 50.1
(TBIWRDP)
P097271 Electricity Access (Rural) Expansion (EAREP) 133.4
P101473 Urban Water Supply and Sanitation Project (UWSSP) 250
P101474 Urban Local Government Development Project (ULGDP) 300
P101556 Electricity Access Expansion Project II (EAREP2) 130
P106872 Road Sector Development Project IV (RSDP4) 245
P108932 Pastoral Community Development Project (PCDP) 80
P113220 Productive Safety Nets APL III (PSN APL3) 850
P117731 Transport Sector Support Project (TSSP) 415
P119893 Elect. Network Reinforcement & Expansion (ENREP) 200
P128891 Protection of Basic Services Project III (PBS3) 600
P130276 Pastoral Community Development Project III (PCDP3) 110
P131118 Road Sector Support Project (RSSP) 320
P133591 Water Supply, Sanitation and Hygiene Project (WASH) 205
P148850 Expressway Development Support Project (EDSP) 370
Total 4,775.2

24. There was mixed progress toward expanding grid-connected electricity service. Both the first
and second Electricity Access (Rural) Expansion Projects (EAREP-P105651 and EAREP2-P101556)
closed during the CPS period, each of which experienced implementation delays resulting in ICR
ratings of MU. GoE’s decision to impose a moratorium on new connections, due to supply-demand
imbalances resulting from the delayed commissioning of Tebeze hydro-electric plant, set back
implementation. Further delays were caused by GoE’s decision to sole-source procurement of meters
to a local public enterprise. GoE subsequently relaxed this requirement but given the serious delays,

77
insufficient time remained to implement the project and the Bank cancelled a significant portion of
project funds. The team proactively proposed reallocation of the cancelled amount to the Ethiopia
Geothermal Sector Development Project. Delays aside, it should be noted that the two projects
connected more towns and villages to electricity services than initially planned. However, as a result
of these GoE decisions, over which the Bank had no control, these projects were unable to ensure the
“last mile” connections to bring electricity services to households.

25. Strong performance in road construction, where the outcome indicator was Mostly
Achieved, was largely attributable to the Third Productive Safety Nets Project (PSNP3 – P113220).
The target was set at 1,008 km of roads, or 10 percent of the GTP target for road construction. IDA
supported different levels of roads within the overall road network, including local and feeder roads
(financed under PSNP3 and AGP), and secondary and regional roads to which four Bank projects
contributed. The Expressway Development Support Project (P?) was approved in FY15, and is IDA’s
first engagement in expressway construction. During the CPS period, a total of 1,370 km of roads was
constructed or rehabilitated with IDA support.

26. Progress toward increased access to improved water and sanitation services in urban and
rural areas far exceeded the target, as PSNP3 facilitated access to improved water resources for 16.1
million people (against a target of 4.2 million). The Water Supply and Sanitation Project (WSSP –
P076735) provided training to more than 160 master trainers who support districts, more than 1,680
district-level facilitators, 7,800 district officials, and 5,800 community leaders who, in turn, helped
communities to construct or improve basic latrines for improved sanitation services in Ethiopia. The
Joint Monitoring Program (JMP) of WHO and UNICEF reports that by 2015, a total of 27.7 million
people have access to improved sanitation in Ethiopia. The Bank’s contribution to this outcome is
estimated at 3,324,800 households across Ethiopia, including in so-called “emerging regions”.
Notwithstanding these results, this target raised definitional issues, as setting a target of “improved
sanitation” is not sufficiently specific. This lesson is reflected in defining CPF targets.

27. Two safeguards issues arose under Strategic Objective 3. Representatives of the Anuak
people in Gambella Region submitted a Request for Inspection to the Inspection Panel (IP) in
connection with the Ethiopia Promoting Basic Services Program III Project (PBS3) in September 2012.
In its February 2013 Report and Recommendation to the Board, the IP found that: "…Management
did not carry out the required full risk analysis, nor were its mitigation measures adequate to manage
the concurrent roll-out of the [GoE's CDP] villagization program in four PBS III regions. The Panel finds
that Management’s approach did not meet the standards of a systematic or holistic assessment of
risks, as called for in the Operational Risk Assessment Framework (ORAF) Guidance, which is aimed…at
identifying adequate risk management measures for affected communities. The Panel finds these
omissions in non-compliance with OMS 2.20 on Project Appraisal." The Bank’s Management Action
Plan (MAP) was put in place to address the main areas of concern in the Panel’s Report and to improve
risk assessment and supervision during implementation through strengthened environmental and
social safeguards, access to grievance redress, increasing opportunities for citizen engagement, and
promotion quality results and data.

28. In the second instance, a transport project highlighted how Bank safeguards are being
incorporated by the GoE and by DPs. The US$370-million Expressway Development Support Project
(EDSP – P148850), approved in May 2015, is supporting the expansion of Ethiopia’s transportation
system through Bank-funded construction of 57 km of the new Modjo-Hawassa Highway. Under EDSP,
the GoE and the AfDB, Korea EXIM Bank, and China EXIM Bank will each finance a section of between
37 km and 57 km of the 203-km highway. Bank Environmental and Social Impact Assessments (ESIAs)
and Resettlement Action Plans (RAP) were prepared for EDSP and adopted by the Ethiopian Roads
Authority. While the Bank only financed one of the four sections of highway, all ESIAs and RAPs have

78
been reviewed by the Bank to determine whether they are consistent with or functionally equivalent
to Bank safeguard policies; all were deemed acceptable.

29. There was moderate progress towards the CPS Strategic Objective of Enhanced Regional
Integration, as both electricity exports and dissemination of agricultural technologies achieved just
over half of the specified targets. Indicators were derived from two Bank-supported regional projects:
Regional Eastern Africa Power Pool Program (EAPP – P126579), and the East Africa Agricultural
Productivity Project (EAAPP – P112688), with IDA commitments totaling US$273 million.

30. East Africa Power Pool (EAPP) experienced prolonged procurement delays. The total
quantity of electricity exported (to Djibouti and Sudan) was 781.88 GWh against a target of 1,401
GWh. The project became effective in December 2013, and contracts for transmission lines and
converter stations were not signed until end-October 2015. Consequently, the resulting increase in
export capacity will not be achieved until end-2018, which is beyond the CPS period. Given the
complexity of this project, the Bank required pre-qualification of firms which entailed approvals from
the utilities and governance bodies in the two countries, in addition to the Bank's procurement
network. Regional projects are subject to lengthy procurement processes, which may be a factor in
considering regional projects in the CPF.

31. Under the East Africa Agricultural Productivity Project (EAAPP), existing and new
agricultural technologies were disseminated from Ethiopia to other participating countries. Baseline
and target values were revised upwards at the time of the CPSPR to reflect implementation progress.
At that time, 57 technologies (45 existing and 12 new technologies) had been disseminated from
Ethiopia to Kenya, Tanzania and Uganda. Milestones under the project include establishment of a
Regional Center of Excellence in Wheat in Ethiopia, which contributed to implementing ten regional
projects and the release of fourteen wheat varieties.

Pillar 2: Enhanced Resilience and Reduced Vulnerabilities

32. WBG support to Strategic Objective 5 – Improved Delivery of Social Services – was provided
through IDA commitments totaling US$300 million: the Health MDG Support Operation (HMDGSO-
P123531), which was supplemented by a US$20-million grant from the Health Results Innovation Trust
Fund (HRITF); and the General Education Quality Improvement Project I and II (GEQIP1-P106855 and
GEQIP2-P129828). Under the PSNP3 Project, 436 health posts were constructed during the CPS period;
and 1,280 primary school classrooms were constructed, expanded, or rehabilitated.

33. Progress towards increased access to quality health services was rated as mostly achieved.
In the case of contraceptive prevalence, access during the CPS period reached 42 percent, surpassing
the CPS target of 35 percent. The increase in the percentage of births attended by skilled health
personnel (16 percent) fell just short of the target of 18 percent. Progress towards increasing the rate
of Penta 3 vaccination coverage (target: 75.7 percent) was inconclusive, as DHS data was not yet
available. As a proxy for Penta 3 vaccination coverage could not be identified, this indicator is Not
Verified, resulting in a rating of Not Achieved.

34. Increased access to quality education was measured by the percentage of students attaining
basic competency. The CPS Progress Report (CPSPR) noted limited progress, is outcome, adding
"…despite progress on access, the quality of service provision in education remains a major challenge."
Between the CPSPR and the end of the CPS some improvements were recorded. According to the
National Learning Assessment, there was a substantial increase in the number of students achieving
basic proficiency or higher, in all subjects, between 2011 and 2015. In Grade 4, the total number of
students achieving basic proficiency or higher in all subjects increased by 57 percent. For Grade 4,

79
while progress was substantial in Mathematics between 2012/2013 and 2014/2015, where the rate
of basic competence or above rose from 52 percent to 63 percent; basic competence or above in
English declined from 58 percent to 47 percent during the same period. For Grade 8, basic competence
or above increased in both English and Mathematics, from 54 percent to 62 percent and from 68
percent to 74 percent, respectively. The quality challenge in learning outcomes was reflected in the
CPSPR Revised Results Matrix, with the addition of the milestone “Percent of qualified primary
teachers has increased from 47.2 percent in FY12 to 64.7 percent in FY14.” This experience highlights
important lessons: 1) the need to focus on quality of learning outcomes rather than solely on access
to schooling; 2) the importance of gender-disaggregating learning outcomes (to highlight the lower
achievement levels for girls at the Grade 4 level); 3) a related need to focus on variations in
achievement across regions, as emerging regions will require additional resources and support; and
4) outcome indicators must be defined so as to be specific and measurable within the timeframe of
the CPS.

35. Bank support to social protection and risk management helped to reduce food insecurity
and increase resilience, notably under the PSNP3. Progress was supported by seven activities totaling
US$480 million in IDA commitments, not including commitments for PCDP2 and AGP, which have
already been counted above.

36. As a result of Bank support under PSNP3, food insecurity of project beneficiaries was
reduced from 3.2 to 1.8 months, far outperforming the indicator target in the CPSPR. Enhanced
resilience to food insecurity was measured against the average net number of months of household
food insecurity. As no baseline was available at the time of the CPSPR, the target was set at 3.2
months. By the end of the CPS period, that figure was reduced to 1.8 months. The ICR for PSNP3 offers
a number of lessons: the project proved the effectiveness of cash transfers in supporting vulnerable
households; substantial food-security impact was observed for households that received their
entitlements under the program (15 kg of cereals per person per month for six months or cash
equivalent); and synergies were achieved by linking public works to livelihood investments.

37. Proactivity in responding to drought-related food insecurity and enhancing resilience is

demonstrated by the preparation of US$100 million in additional financing for PSNP4 (P146883)
from IDA’s Crisis Response Window (CRW), approved by the Board on June 30, 2016. This
supplemental funding scaled up PSNP to reach drought-affected households that were not currently
receiving support and strengthened the response to core beneficiaries suffering from the effects of
the drought.

38. Results achieved under PSNP3 demonstrated that social accountability tools can help to
improve service delivery. The Kebele Appeals Committees played an important role in supporting
grievance and redress mechanisms and identifying areas for program improvement. This latter
observation may be applicable to broader risk management in the Bank's portfolio and to creating
greater space for citizen engagement in the CPF.

39. Progress toward two of the three indicators for increased adoption of disaster risk-
management systems (woredas with functional connectivity, disaster risk profiles, and contingency
plans) far exceeded the targets. Early warning on disaster risk systems was provided in 122 additional
woredas and 267 woredas developed contingency plans against a target of 100 additional woredas.
While 125 woredas were connected to Woreda Net under the Public Sector Capacity Building Project
(PSCAP – P074020), connections took place prior to the CPS period and no additional woredas were
connected to Woreda Net during the CPS period. The CPSPR noted “progress in building up functional
connectivity in woredas was stuck in procurement issues”, yet another example of an indicator that

80
was subject to government action – or inaction – over which the Bank had no control. This lesson is
well-noted in the choice of indicators and targets for the CPF Results Matrix.

40. Progress toward sustainable natural resource management and resilience to climate change
was measured in terms of area (in ha) under sustainable land and water management practices in
selected watersheds. This outcome was mapped to three Bank-funded operations – the first and
second Sustainable Land Management Projects (SLMP – P107139, SLMP2 – P133133); and the Tana
and Beles Integrated Water Resources Development Project (IWRDP – P096323), with a target of 1
million ha under protection. The three projects collectively brought 463,581 ha under sustainable land
and water management practices. In addition to these three projects, PSNP3 developed sustainable
land and water management practices over an area encompassing 722,191 ha, and an additional
217,599 hectares were supported under AGP. As such, a total of 1.2 million ha were brought under
sustainable land and water management practices. This has created additional productive resources
for communities across the country, including for crop production, apiculture and animal husbandry,
and contributed to implementation of Ethiopia’s Climate Resilient Green Economy (CRGE – P146290)
strategy.

Foundation: Good Governance & State Building

41. Important targets, including implementation of the Balanced Score Card (BSC) and good
PFM practices, were mostly achieved under the CPS Foundation, resulting in an overall rating of
Moderately Satisfactory. Outcome indicators were drawn from: PSCAP, the Protection of Basic
Services Social Accountability Program (PBSSAP – P129534), and PFM training and TA, funded with
total IDA commitments of US$100 million.

42. Under PSCAP, BSC implementation began in 145 federal offices and more than 270 regional
offices. For the first time in the history of the civil service in Ethiopia, institutions have integrated BSC
measures in their strategic plans. The ICR for PSCAP notes that the project had substantial institutional
development impact.

43. PBSSAP delivered over and above its target for citizen participation. The target was linked to
PBSSAP's assumed successor project, which did not materialize due to insufficient donor funding (as
it is entirely donor funded). PBSSAP still delivered over and above its own target, with enhanced
standards for municipal service delivery and an increased number of citizen groups taking part in
planning and budgeting processes. As a result of these gains, the indicator for enhanced space for
citizen participation achieved a rating of Mostly Achieved.

44. There was notable progress towards enhanced PFM, procurement, transparency and
accountability. During the CPS period, fourteen federal ministries developed Citizens’ Charters, which
they began to publish. Amhara region has developed charters for all regional bureaus, while three
other regions have developed charters for their Civil Service Bureaus as a model, based on the charter
developed by the Federal Ministry of Civil Service. The number of regional institutions conducting
annual financial audits has increased from 30 percent to 80 percent, against a target of 50 percent. As
a result of strong Bank support to PFM throughout the CPS period, the associated outcome indicator
is rated as Achieved.

WBG PERFORMANCE

45. WBG performance during the CPS cycle was rated as Good. Implementation was successful
and the WBG team received accolades from both the GoE and DPs for their technical capacity and

81
execution. Moreover, the WBG convened DPs on multi-donor programs, substantially lowered GoE
transactions costs, and developed knowledge input that is valued by both the GoE and DPs.

CPS and CPSPR Design

46. The distribution of interventions across the CPS Pillars, Strategic Objectives, and Foundation
of the CPS resulted in a certain degree of overlap. These nine areas of overlap51 can be viewed as an
asset to the CPS rather than a shortcoming, reflecting creativity in preparing joint operations and
employing innovative approaches to cross-sectoral objectives. For this very reason, and to avoid
single-sector “silos”, the three Focus Areas of the CPF will be cross-cutting and span multiple GPs.

47. The Bank’s program supported gradual reforms using traditional project financing (IPF) in
addition to the PforR instrument. The December 2013 ICR for the PBS project offered the following
observation regarding investment lending vs development policy lending: "… the choice of a SIL was
critical to supporting capacity building at the sub-national government level, particularly on PFM and
transparency/accountability aspects. It also allowed strengthening the M&E systems and the use of
associated Bank fiduciary safeguards, which facilitated co-financing from donors, most of whom
strongly supported the use of a SIL for PBS II. [….] The PBS in many ways effectively takes on key
features of the Bank’s new Program for Results (PforR) that links disbursements to defined results."

48. Analytical work successfully leveraged the policy dialogue with Government and, where
appropriate, led to operations. Examples of analytical work which helped to animate policy dialogue
include: Ethiopia Economic Update Series (four issues during the CPS period), the Poverty Assessment
(2014), SME Access to Finance Study (2014), Public Expenditure Review (2015), Ethiopia’s Great Run
Report (2015), Urbanization Review (2015), and Systematic Country Diagnostic (2016). The SME
Access to Finance and the Urbanization Reviews triggered significant IDA operations in areas
previously thought to be “off-limits”. With regard to the Twin Goals, the PSNP series has had a
significant impact on food security, livelihoods and skills development, and land management, while
committing GoE to gradually allocating greater budgetary resources to the most vulnerable. Similarly,
PBS2 supported improvements in cash management, budget and accounting reforms, and federal and
regional procurement systems, strengthening local governments and the decentralization process.

49. The portfolio performed strongly against the Bank’s gender targets. During the CPS period,
94 percent of approved projects were rated as fully gender-informed (against a target of 66 percent),
and 100 percent of active projects (for which data are available) which included gender-related or sex-
disaggregated indicators in their results frameworks also reported on these indicators in their ISRs
(against a target of 75 percent). An even more comprehensive approach to gender targets, and gender
equality, is planned for the CPF.

50. The CPS acknowledged the high levels of investment associated with achieving GTP
objectives, which in turn requires private sector participation to sustain Ethiopia's high growth
trajectory. A challenging policy environment during the CPS period limited the Bank’s ability to
support the transition from public to private sector-led growth, as reflected in both the portfolio and
the Results Framework. The CPS refers to the 2011 Joint Staff Advisory Note (JSAN) of the GTP, which
raised concerns regarding the realism of GTP targets based on a scenario of 11.2 percent growth.

51
There was overlap in relation to fostering competiveness (Pillar 1) and increased competitiveness and
productivity (Strategic Objective 2); stable macroeconomic environment (Strategic Objective 1) and good
governance and state-building (Foundation); increased and improved delivery of infrastructure (Strategic
Objective 3), Foundation, and improved delivery of social services (Strategic Objective 5); enhanced resilience
and reduced vulnerabilities (Pillar 2), Foundation, and comprehensive social protection and risk management
(Strategic Objective 6).

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Nonetheless, the CPS Results Framework included targets obtained directly from the GTP.52 The CPSPR
made revisions to the Results Framework while retaining selected targets obtained directly from the
GTP.

Alignment with the WBG Corporate Strategy

51. Both CPS Pillars, and the underlying Strategic Objectives, address the Twin Goals by focusing
on competitiveness and employment, which boost shared prosperity; and increased resilience to
shocks and
vulnerability,
which reduces
poverty. Although
the Twin Goals
had not yet been
adopted at the
beginning of the
CPS period, the
CPS focused on
areas critical to
achieving those
development
objectives. The
CPSPR included a
chart illustrating
the portfolio according to contributions to the Twin Goals. This figure has been revised (above) to
reflect the contributions of the CPS program, through June 30, 2016, to the Twin Goals.

52. Bank financing and ASA were well aligned. The Bank's analytical work on macroeconomic
issues informed a number of policy changes, as discussed above. Similarly, the Bank-led study on SME
financing resulted in the SME Financing Project. Bank-IFC collaboration was significant over the CPS
period, as demonstrated by the work of the Trade and Competitiveness Global Practice, which
collaborated on the CJCP. The CJCP will provide firms with industrial land and buildings (water,
electricity, transportation infrastructure), and with a One-Stop Shop, thereby reducing transaction
costs. The IFC Investment Policy Project supports the GoE in revising the investment incentives
framework and Investment Proclamation. A fully integrated WBG CPF will reflect an even closer degree
of collaboration between the Bank, IFC, and MIGA.

53. The Bank managed tradeoffs between development impact and risk in Ethiopia over the
course of the CPS period; the CPF will need to devote greater attention to identifying and mitigating
risks. For example, crowding-out of the private sector was evident during the CPS period. This risk was
highlighted by both IEG and the 2011 JSAN of the GTP. The CPSPR acknowledged that private sector
results have been mixed: "Severe business environment constraints hamper private sector
development, domestic and foreign alike. The WBG Doing Business Report for 2014 ranks Ethiopia 125
out of 189 economies, with the ranking dropping to 166 for 'Starting a Business." This issue could have
received greater attention in both the CPS and CPSPR, to the extent that there were risk-mitigating
measures which the Bank could influence.

52
Examples of CPS Results Framework targets obtained directly from the GTP include Outcome Indicator 1 and
Indicator 9. Certain targets, such as Outcomes under Strategic Objective 5, were adjusted at the time of the
CPSPR to better reflect the Bank's limited ability to influence outcomes.

83
54. Two additional risks materialized during the CPS period: food insecurity and unrest
associated with land management and ethnicity. With regard to food insecurity, both the CPS and
CPSPR addressed enhanced resilience and climate change mitigating factors. Bank-funded programs
such as PSNP and SLMP were highly effective in mitigating the impact of the recent drought. The social
unrest which emerged during the CPS period in relation to resettlement disputes (as described in the
Inspection Panel report), and other land issues, calls for better understanding of risks to development
outcomes and mitigation measures.

Results Framework, intervention logic, realism of objectives, relevance of indicators

55. The CLR identifies shortcomings in the design of the Results Framework, intervention logic,
realism of objectives, and relevance of indicators. The CPS program design was relevant to Ethiopia's
development challenges and was well-aligned with the GTP. While the Results Framework Outcomes
were mapped directly to Bank interventions, some of the indicators were lacking in realism or the
ability to be monitored and measured.

56. A smaller number of Outcomes and Strategic Objectives could have produced a more
focused Results Framework.53 While this CLR takes issue with the number of outcomes and strategic
objectives, the CPS Results Framework reflected lessons from the 2008 CAS Completion Report, which
argued that a more comprehensive Results Framework (i.e., with a larger number of Outcomes and
Indicators) was necessary to link Bank-supported activities to development outcomes. The CPF Results
Framework will seek to strike a balance between these two lessons with realistic, time-bound, and
measurable indicators.

57. Although gender featured prominently in the CPS (reflecting GTP), there is little focus on
gender in the Results Framework. There were no sex-disaggregated indicators in the Results
Framework, and the only gender-informed indicators were the proportion of births attended by skilled
health personnel, and the contraceptive prevalence rate. The CPF Results Framework features greater
focus on gender-linked and sex-disaggregated results indicators, per the Bank’s Corporate Scorecard
and IDA commitments.

CPS and CPSPR implementation

58. Sixteen out of eighteen CPS Outcomes are rated Achieved or Mostly Achieved, while two
CPS Outcomes are rated Partially Achieved. Five of the six the Strategic Objectives are rated Mostly
Achieved or above, while both Pillars and the Foundation are rated Moderately Satisfactory. As such,
implementation of the CPS program, as measured by the Bank's Results Framework, contributed to a
majority of CPS Objectives. Despite challenges in the policy environment and external shocks during
the CPS period, the CPS contributed to achieving a significant number of CPF objectives.
Accomplishments in CPS implementation contribute to a WBG performance rating of Good.
Coordination with Government counterparts and DPs was highlighted during CLR consultations, as
was the Bank’s technical leadership, project quality, and responsiveness. The Bank leveraged its
comparative advantage to attract funding from traditional and non-traditional partners in a number
of sectors, including Water, Roads, Health, Governance, Energy, CDD, Social Protection, and
Environment.

53
It should be noted that Results Frameworks for other large IDA clients have the same number of Outcomes
as the Ethiopia CPS Results Framework: the India CPS (2013) comprises 19 Outcomes and the Nigeria CPS
(2014) comprises 17 Outcomes. In contrast, the Vietnam CPS (2011) comprises 8 Outcomes while the Pakistan
CPS (2014) comprises 14 Outcomes.

84
59. Effective coordination between the Bank and IFC in private sector development and job
creation contributed to positive CPS outcomes. Collaboration was particularly strong in supporting
GoE’s industrialization agenda, and access to finance for SME. IFC and the Bank have also worked
effectively in supporting the business environment and the CJCP. With regard to small trust funds such
as the Initiative to Support Ethiopian Private Sector Development (administered by IFC), DPs voiced
concern regarding coordination and costs. MIGA has collaborated well with both IFC and the Bank
during the CPS period. MIGA's exposure in Ethiopia is limited (US$9.7 million) in the form of a
guarantee to Industrial Development Corporation of South Africa (IDCSA) covering its non-shareholder
loan to Africa Juice Tibila Share Company, which received a US$3 million investment from IFC in May
2014. IFC's portfolio in Ethiopia (committed and outstanding) more than doubled from US$131.1
million in 2012 to US$279.0 million in 2016.

60. Portfolio management improved during the CPS period. The September 2012 CPPR indicated
total net commitments of US$4.26 billion as of end-December 2011, the second-largest portfolio in
the Africa Region at the time. Commitments at-risk stood at 10 percent by end-FY11, with a realism
rating of 40 percent, proactivity rating of 100 percent, and a disbursement ratio of 34 percent
(compared with an average of 26 percent across FY10-FY12). Portfolio data for June 2016: IDA
commitments rose to US$7.1 billion (largest in the Africa Region), commitments at-risk were US$578.5
million or 8.1 percent of the portfolio, and proactivity was 75 percent. Ratings for the Ethiopia
portfolio are higher than the Africa Region average, which is noteworthy given the size of the portfolio.
The disbursement ratio at end-June 2016, 27 percent, was also above the Africa Region average. Most
of the supervision during the CPS period has been led by field-based task team leaders.

LESSONS LEARNED

Analytical and operational activities need to go hand in hand

61. The Country Assistance Strategy Completion Report (CASCR) conclusion regarding the value
of providing just-in-time analytical work was applied with great success. The CASCR also
recommended that the Bank engage in improving the quality of basic services, by increasing the use
of PforRs; this guidance was applied through delivery of PBS3, ULGDP, ESPES, and the Health MDG
Project. Data quality was also raised by the CASCR, and was addressed with the Statistics for Results
Project.

62. Production and dissemination of knowledge was very effective during the CPS period. The
most recent examples of highly relevant knowledge work include the Great Run, the SME Finance
Report, and the Ethiopia Urbanization Review, all of which have informed GoE’s decision making. In
relation to SME Finance, the Bank is the only DP allowed into this domain as a financier. GoE
representatives interviewed for this CLR found Bank knowledge products to be constructive and of
high quality, notably the Urban Safety Nets report and Urban Poverty study, and the Logistics report
(including transport, trade, and customs).

63. The CASCR lesson of linking lending and non-lending instruments with indicators and CAS
outcomes in a logical Results Framework was applied to a limited extent. The CASCR puts particular
emphasis on avoiding "pitfalls in using high-level indicators that are beyond the scope of the CAS." As
already noted in this CLR, the number and choice of Strategic Objectives, Outcomes, and Indicators
will be considered carefully in the forthcoming CPF.

Forward-looking innovative work is needed to engage with Government in the long term

85
64. As Ethiopia aspires to become a lower middle-income country by 2025, new approaches are
needed to achieve structural transformation of the economy. This is reflected in the recently
approved SME Finance Project, discussions about land reform in connection with the Ethiopia
Urbanization Review, the Great Run report, and the SCD. During the CPS period, the Bank has worked
to support the GoE through lending, analytical work, and policy dialogue. The key lessons – what
worked well and what could be done better – are summarized in Table 3 below.

65. World Bank responsiveness to the GoE during the CPS period was considered outstanding.
Examples include the analytical work that was tailored to GoE requests and use of the PforR
instrument. With regard to a “mid-course correction”, changes to the strategy and the Results
Framework at the time of the CPSPR could have been greater. Going forward, the CPF will feature
annual portfolio reviews, to ensure close monitoring of progress against results indicators, in addition
to preparing the PLR at the mid-point in the CPF period.

Table 3: Bank Performance during CPS Cycle FY13-16

What did the Bank do well?

Deepened the working relationship with GoE
Delivered a high-quality ASA program which was valued by both GoE and DPs
Led and coordinated DP support, including creating multi-donor financing vehicles (notably
EDSP)
Significant impact of largest projects
Exceptional results in relation to social protection (notably PSNP3)
Strong mapping of Bank interventions to Outcomes
Where could the Bank improve?
Risk identification and mitigation
Development logic in Strategy and Results Framework
Candor in ISR ratings
Focus on quality of services delivered, not just on access
Greater emphasis on gender equity and gender targets across the portfolio

Risk management and ongoing evaluation are needed to bring the best in operations

66. Under Strategic Objective 3 – increased and improved delivery of infrastructure -- two
lessons emerged regarding risk assessment and definition of indicators. Beyond preparation of the
Bank-prescribed risk assessment framework, the findings of the Inspection Panel report on PBS3
highlight the importance of a more proactive and systematic approach to risk management – to
anticipate environmental and social safeguards issues, as well as financial management risks -- in the
CPF. Greater precision in defining outcome indicators is needed to allow for monitoring and evaluation
(M&E). For example, while the Water and Sanitation Program's 2015 note provides a framework for
classification of latrines and other types of sanitation, the definition of "improved sanitation" in CPS
Indicator 11 is not clear. Greater specificity will be applied to such indicators in the CPF Results
Framework.

67. Similarly, Outcome 7.2 – enhanced space for citizen participation -- offers a lesson in terms
of setting achievable targets when results are linked to non-IDA-funded projects as well as
measuring progress against a “moving target”. The outcome indicator was linked to a presumed
successor to the PBS Social Accountability Project, which is entirely donor-funded, and funding did not
materialize. When it became clear that PBSSAP was not likely to have a successor project, the CPS
indicator could have been adjusted at the time of the CPSPR. Going forward, the potential inability to
secure follow-on funding can and should be added to the universe of portfolio risks. When counting

86
the number of woredas with accountability tools and joint action plans for improving the quality of
services, the percentage of the total number of woredas with such mechanisms would be more
relevant than the number of woredas, given that the number of woredas in Ethiopia increased during
the CPS period.

68. Beyond risks, questions can be raised regarding the candor and quality of self-evaluation in
the portfolio. A review of the 17 projects which closed during the CPS period reveals disconnects
between ISR and ICR, and between ICR and ICRR (IEG). Seven of the closed projects (about 40 percent)
received an MU or U Outcomes rating by IEG, while ICR ratings are U or MU for five projects (or about
30 percent). In contrast to ICR/ICCR ratings, the 28 projects listed in the February 2016 portfolio
dashboard include only three projects with an MU rating for IP or DO (about 11 percent), with no
projects rated U or HU in the report. Overall, portfolio management has become more proactive
during the CPS period. Furthermore, there have been no substantial ICR-ISR disconnects since 2013.
The smaller number of U and MU ratings in the active portfolio can be attributed to better project
implementation readiness, improved client implementation capacity, and enhanced implementation
support and supervision.

69. Ethiopia’s PFM performance of Ethiopia is among the best in Africa, as reflected in the 2014
PEFA scores. This allowed the Bank to use country systems during the CPS period for the main part of
its projects: only cash management and financial reporting are managed according to the Bank’s
standard procedures. The bulk of project management is performed by Ethiopian civil servants, not
by PIUs. Use of country systems also implies greater client ownership and long-term project
sustainability.

The Bank is at its best when it does not operate in isolation

Coordination with DPs was very strong during the CPS period. The Bank’s leadership in lending,
coordination, and technical capacity helped to leverage financing from multilaterals, traditional, and
non-traditional partners for projects including the PBS, PSNP, GQEIP, and ULGDP. These partnerships
will continue under the CPF, allowing the WBG to further leverage financing and knowledge from
traditional as well as non-traditional DPs

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 Annex 1: CPS Revised Results Matrix and Progress to Date
(*all changes and updates made during CPSPR are in blue)
CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
Overall CPS Theme: Sustainable Growth and Reduced Poverty
GTP Goals:
1. Maintain average GDP Growth rate of 11%
2. Reduce total poverty headcount from 29.2% in 2010/2011 to 22.2% in 2014/15
3. Attain MDGs in social sectors (health & education)
4. Create stable democratic and developmental state
5. Maintain a stable macroeconomic framework

PILLAR 1: FOSTERING COMPETITIVENESS AND EMPLOYMENT

CPS Strategic Objective 1: Stable Macroeconomic Environment

GTP Goals:
1. Contain inflation.
2. Strengthen revenue generation capacity (tax revenue/GDP increased from 9.7% in 2010/11 to 15.3% in 2014/15)
3. Raise domestic savings (share of gross domestic savings to GDP increased from 5.5% in 2010/11 to 15% in 2014/15)
4. Maintain fiscal deficit at a sustainable level (maintain budget deficit share to GDP at less than 2%)
5. Disclose and maintain off budget public investments (quasi fiscal operations) at a sustainable level
 Rapid growth could Outcome 1.1 - Structural and  Timely preparation and On-going
pose risks to macro macroeconomic policies are monitoring of an integrated and Financing Analytical work related to
stability, in rising conducive to sustain internal and consistent Macro-Economic and  Ethiopia Statistics for Results macroeconomic management
inflation and external balance Fiscal Framework Facility provided valuable input to
external The macroeconomic and fiscal Knowledge Services policy dialogue with the GoE.
imbalances. Indicator 1: Sound monetary and framework is prepared in a timely  Growth Study
 Inflation has been fiscal policies to control inflation manner and monitored on a regular  Ethiopia IC: Business Taxation
high and non- implemented basis.  Public Expenditure Review
subsiding since Baseline: CPI 21.6 (end of 2011/12)
Planned for FY15 and FY16
June 2011. Target: CPI < 10%  Establishing a system (database)
Financing
 Need to further to monitor off budget
 DPOs General or Sectoral
strengthen Progress to date: investments and contingent Knowledge Services
dialogue to 7.5 percent in June 2016 liabilities in the public enterprises  Systematic Country Diagnostics
develop policy No progress has been made on this  Economic Update Series
options to discuss milestone, due to insufficient client
emerging issues. demand. However, the Bank has Completed
worked with GoE in several areas Knowledge Service
including MTDS, financing strategies,  Poverty Mapping
PER, and debt monitoring.  Economic Updates Series (I.
inflation and competitiveness;

88
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
 Establishing a mechanism for II. savings and trade logistics;
discussing macroeconomic issues III. export performance and
between the GoE and competitiveness)
development partners (IMF, WB)  Debt Management Strategy;
Performance Assessment
A Macroeconomic Discussion Forum  Structural Change in Ethiopia
was established in April 2014 and will  Non-Concessional Borrowing
convene twice yearly.  Strengthening Public Debt
Management Capacity
 Fiscal Decentralization

Partners
 IMF
 Revenue growth Outcome 1.2 - Increased domestic  Continued increase of taxpayer On-going
has fallen short of resource mobilization registration using biometric Financing
GDP growth systems (1.8 million in 2011)  Local Govt Dev Project II
recently and Indicator 2: Number of urban local  Ethiopia Statistics for Results
constrains the governments that achieve an The biometric taxpayer information Facility
fiscal space. increase of own source municipal registration system is implemented
 Domestic resource revenue of at least 10 percent over across the nation and registered over Knowledge Services
mobilization has the previous year under ULGDP II. 2 million taxpayers information from a  Ethiopia IC: Business Taxation
been weak. Baseline: Zero (FY14) base line of zero in the last four years.
Planned for FY15 and FY16
Revenue to GDP is Target: 18 out of 44 participating
Financing
low compared to ULGs (FY16)  Equipping tax collection
 DPOs General or Sectoral
Sub-Saharan institutions with adequate
Knowledge Services
Africa’s average. enforcement power (information
Progress to date: 34  Systematic Country Diagnostics
and tax-auditing systems) at
 Economic Update Series
federal and regional levels
Indicator changed as the original
Completed
indicator related to WBG support The tax system reform program Financing
through PSCAP, which closed in implemented in all regions and at all  Public Sector Capacity Building
December 2012. For the remainder levels of government. The program (PSCAP)
has streamlined manuals for tax Knowledge Service
of the CPS period, ULGDP II will play
assessment, collection, audit and  Economic Updates Series
an important role in increasing
administration across regions.  Debt Management Strategy;
revenue.
Performance Assessment
 Strengthening Public Debt
Management Capacity

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 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
 Enhancing the capacity of tax
collection and administration Partners
Between FY05 and FY13, the revenue  IMF
reform has: overhauled tax laws and
manuals; introduced VAT and other
taxes; restructured tax bodies;
strengthened the IT-assisted systems
(0-7 regions), Biometric TIN (0-2
Million, ASYCUDA, Cash register (0-39
K users); reduced average processing
time for tax collection (4hr 35mins -
15mins).
CPS Strategic Objective 2: Increased Competitiveness & Productivity
GTP Goals:
1. Agriculture: Intensify production of marketable farm products for domestic and export markets by small farm holders and private
agricultural investors
 Increased cereal productivity (qt/ha) from 17 qt/ha in 2010 to 22 qt/ha in 2015
 Increased value of agricultural sector export (in US$) from 1.55bn in 2010 to 6.58bn in 2015
2. Private Sector and Improved Competitiveness: Raise the efficiency and competitiveness of trade sector and establish a favorable
environment for productive investors
 Total exports as % of GDP increased from 13.6% in 2010 to 22.5% in 2015
 3mln new jobs created through MSEs; 40,000 jobs in textile and garment; 200,000 jobs in sugar industry
3. Financial sector: Strengthen the financial sector with the aim of establishing an accessible, efficient and competitive financial system
 Access to finance increased from 20% currently to 75% by the end of the GTP period
 Low productivity of Outcome 2.1 – Increased agriculture  Land areas with improved On-going
crop and livestock productivity and marketing in selected technologies in targeted Financing Operations exceeded CPS
in many areas woredas  Productive Safety Nets (APL targets in terms of agricultural
geographical areas. III) yields and value of marketed
 Weak land and Indicator 3: Average yields of selected The area with improved land and  Irrigation & Drainage Project agricultural products.
water crops in targeted woredas (index, see water management technologies  Tana &Beles Int. Wat Res Dev
management AGP PDO) has increased by 224,014 ha since Project
practices and Baseline: 9.9 qt/ha 2009/2010.  Agricultural Growth Program Regional project (EAAPP)
institutions. Target: 11.5 qt/ha  Protection of Basic Services supported the dissemination
 Fragmented and  Additional irrigation areas (PBS) Phase III of agricultural technologies
uncoordinated Progress to date: Due to the extension of developed or rehabilitated  Pastoral Community with neighboring countries; a
agricultural public closing date for AGP the end of project (ha) Development (PCDP) III mid-course correction at
services. sample survey has not been completed.  Eastern Africa Agricultural CPSPR reflected an upward
As a proxy CSA official data applied to Productivity Project adjustment of the baseline

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 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
the index constructed by IFPRI for AGP, The irrigation system which is  Sustainable Land and targets to reflect
and limited to those regions under AGP, under construction/design/ Management Project implementation progress.
was used. Yields per hectare nearly rehabilitation covers a total areas  Sustainable Land
doubled from 16.4 in 2011/12 to 28.4 in of 25,379 ha. Management Project-II
2014/15.  Ethiopia- Nib Bank Coffee
 Km of feeder roads Cooperative Risk Sharing
Indicator 4: Value of marketed constructed or rehabilitated Facility (IFC)
agricultural products in targeted woredas
Baseline: 5,790 ETB per household Since 2009/2010, AGP and SLMP Knowledge Services
Target: 7,064 ETB per household have constructed 2029.2 km of  Land Administration
feeder roads.  Climate Innovation Center
Progress to date: The end of project (InfoDev)
evaluation completed for the marketing  Development outcomes of  Growth Study
component of AGP (conducted by USAID) Ethiopian Coffee Project  Strengthened RED&FS
finds the benefit of AGP equal to Coordination (Agriculture)
approximately 3,150 ETB per beneficiary FY14 has been the third year of  Programmatic Advisory
since 2011, i.e., more than twice the CSP IFC Ethiopian Coffee Project, and Services to the CRGE Facility
target for households. this project continues to perform (Climate)
well with zero non-performing  Urban Transport Study
loans, strong farmer outreach and  Sustainable Groundwater
increases in employment. Main Development and
development outcomes include: i) Management
47,000 farmers have been  Access to Finance for
supported in the Ethiopian coffee Producers/Farmers (IFC)
supply chains and 1,080 jobs have
been created; ii) volume of coffee Planned for FY15 and FY16
processed has increased from Financing
1,023 MT to 1,375 MT.
 Productive Safety Nets
Program Phase IV
 Regional Pastoral Livelihoods
Resilience Additional
Financing for Ethiopia
Completed
Knowledge Services
 Disaster Risk Management
Financing
 Pastoral Community
Development Project II

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 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
 Sustainable Land
Management Program (FY08)

Partners
USAID, CIDA, Spain, AFO,
Netherlands, UNDP
 Business Outcome 2.2 – Increased  Regularly convene Public- On-going
regulations and competitiveness in manufacturing and Private Dialogue Forum Financing There was no progress toward
policies in need of services (PPDF) with  Tourism Development the CPS target of increased
improvement. recommendations provided Project SIL value of exports generated by
 Weak public- Indicator 5: Number of new jobs created to the government for  Competitiveness and Job
in targeted manufacturing and services firms located in supported
private dialogue. adoption Creation Project
 Shortage of firms There have been various dialogue Industrial Zones. As export
 Urban Local Govt
Business Baseline: zero forums aiming to support the competitiveness was
Development Project
development Target: 15,000 adoption of 10-15 investment hampered by the appreciated
(ULGDP)
services including climate improvements, and currency, CPF indicators
 Local Govt Dev Project II
skills. Progress to date: recommendations have been
 Women Entrepreneurship should not be linked to factors
 Poor trade 12,014 jobs were created in targeted adopted as a result of PPD on
Development Project (WEDP) such as this which are beyond
logistics. firms. In addition, 319,000 jobs were company formation issues and
 Derba Midroc Cement the
created, but not linked to this outcome Tourism Sector Challenges.
Company (IFC) Bank’s control.
indicator (manufacturing and services).
 GTST Ethiopia II (IFC)
 Streamlined registration and
CJCP became effective on August 4,  CrownPlaza Addis (IFC)
licensing requirements
2014, allowing less than two years in IFC IC team has worked on  Dallol Potash(IFC)
which to meet the target, which was inventory, analysis and  africaJUICE (IFC)
insufficient time to generate recommendations on all business  Tulu Kapi Gold Project (IFC)
improvements in the export component licenses and upgraded the existing  JSDF: Support to Artisan
of sales by supported firms ICT system for business Miners
registration- OTRLS. The upgraded
OTRLS has been deployed in 130 Knowledge Services
sites in Addis Ababa.  Finance Leasing
 Scaling up MSME Finance
 Number of firms supported (knowledge exchange with
in selected manufacturing India)
and service sectors through  Ethiopia Cheque
business development Standardization Project
services (BDS), by owner  Regulatory and Supervisory
gender. Framework for
Microinsurance

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 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
PSDCB, together with the ongoing  Improving efficiency of
tourism project, has provided payments system
support to 191 firms by improving  Ethiopia IC: Trade Logistics
the enabling environment and Project (IFC)
institutional capacity.  Ethiopia IC: Business
Regulation (IFC)
 Average number of trade  Ethiopia Business Forum (IFC)
logistic documents and steps  Ethiopia IC: Business
reduced Taxation Project (IFC)
Although no trade logistic  EI-TAF: Improving Extractive
document has been removed in Industries Dev
the import/export clearance Planned for FY15 and FY16
process, ERCA has eliminated the Financing
submission of copy of TIN for
 SME Finance
import and export based on a
 IC Program (IFC)
memo IFC provided.
Completed
 “Ethiopian Cities Day” to Financing
promote competition  Private Sector Development
conducted on annual basis Capacity Building (PSD CB)
This event has been conducted Project
annually in Nov/Dec by ULGDP. Knowledge Services
 Lack of medium Outcome 2.3 – Increased MSE access to  Coverage of the Credit
 Chinese FDI in Ethiopia
and long term financial services Information Center (CIC) While access to credit
 Structural Change in
finance. increased to include also surpassed the CPS target,
Ethiopia: An employment
 Micro and small Indicator 6: Volume of bank funding: MFIs’ clients access to financial services
perspective
enterprises (MSEs) Lines of credit to MSEs The coverage of lending remains extremely limited.
 Investment Climate from a
currently having Baseline: zero institutions by the new credit This constraint will be
Regional States Perspective I
limited access to Target: US$28mln reporting was extended to include addressed in the CPF.
 Skills for Competitiveness
financial services. all banks and key NBE regulated
Progress to date: and Growth in
MFIs. The IFC CIC project provided
WEDP has disbursed US$43 million to Manufacturing
a short-term intervention to
MFIs (as of November 01, 2015) support NBE to undertake a  SME Finance in Ethiopia
technical upgrade of its credit  IFC CIC project
reporting system. It will take at  ICT for Transformation
least 2-3 years after project  Ethiopia Mining Sector
completion to achieve the project Assessment
target, which is, the total credits
in SME leading expand by 10%. It
is too early to judge at this stage.

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 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
Partners
 Line of credit to support  DFID, EU, AfDB, GTZ, IMF,
MSEs established CIDA
A line of credit to support MSEs
has been established under the
Women Entrepreneurship
Development Project (WEDP). The
line of credit is channeled from
MoFEC to DBE to MFIs. It
combines the provision of liquidity
with a package of technical
assistance to help MFIs to better
serve growth-oriented MSEs on
an individual basis and through
larger loans.
CPS Strategic Objective 3: Increased and Improved Delivery of Infrastructure
GTP Goals:
1. Power: (i) Electricity coverage increased from 41% in 2010 to 75% in 2015; (ii) Power generating capacity (MW) increased
from 2,000 in 2010 to 10,000 in 2015
2. Transport: (i) Road network increased from 49,000 km in 2010 to 136,000 in 2015; (ii) Roads in fair and good conditions
increased from 81% in 2010 to 86 % in 2015
3. Water and Sanitation: (i) Potable water coverage increased from 68.5% in 2010 to 98.5% in 2015 (ii) Water sanitation
coverage increased from 52.4% in 2010 to 84% in 2015 (Source: Sanitation Action Plan)

94
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
 Low access rates in Outcome 3.1 – Increased Access to  Increased household On-going
areas already Electricity electricity connection in Financing GoE decisions regarding new
connected to the selected areas that are  Electricity Access Rural II connections and sole-sourcing
grid. Indicator 7: Number of people provided already connected to grids  GOPBA Electricity Access meters imposed long
 Major network with access to electricity in selected areas and that are newly  Electricity Network implementation delays, and
bottlenecks due to connected to grids Reinforcement & Expansion
rapid growth in Baseline: eventually resulted in
Project (ENREP)
demand require On-grid: 0 million (revised at CPSPR) Baseline: Zero cancellation of a significant
 Ethiopia Geothermal Sector
reinforcement of Off-grid: 0 million (revised at CPSPR) portion of project funds.
Development Project
transmission Progress to date: Future projects should take
network. Target: On-grid: 340,000 greater note of potential
Knowledge Services
 Low access to off- On-grid: 1.7 million (revised at CPSPR) Off-grid: 480,000  Geothermal Sector (IFC) policy risks in the definition of
grid renewable Off-grid: 0.25 million (revised at CPSPR)
CPF targets.
energy. Progress to date: 17,371 Planned for FY15 and FY16
 Weak Progress to date:
On-grid: 1.6 million Financing
implementation  Number of newly electrified
and management Off-grid: 3.4 million  Energy Network
towns and villages in
capacity of Reinforcement Phase II
selected areas
Ethiopia Power
Cooperation Knowledge Services
Progress to date: 823
(EPCO) to manage  Energy Sector Review
large and complex  Renewable Energy Resource
 Number of EEPCo Staff
projects. mapping
trained
Completed
Progress to date:
Financing
3,405 staff has been trained
 Nile Basin Initiative: ET/SU
Interconnection
 Electricity Access (Rural)
Expansion Project
 Energy Access SIL

Knowledge Services
 Accountability Issues in
Power Sector

Partners
 AfDB, AFD (France), SNV,
Japan, Iceland

95
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
 Low road density - Outcome 3.2 – Improved roads,  WBG progresses on road On-going
only 10% of rural transport infrastructure construction and Financing The success of PSNP3 in
population lives rehabilitation.  Road Sector Development supporting remarkable
within 2 km of an Indicator 8: Additional km of roads Support Program Project APL progress in road construction
all-weather road. constructed (new or upgraded with Since 2011, a total of 481 km in III and water and sanitation
 Low Ethiopia Road asphalt) or rehabilitated to fair and good federal road construction has  Road Sector Development
Authority (ERA’s) condition been financed by the Bank, shows the value of multi-
Support Program Project APL
capacity for design Baseline: accounting for about 16% of GTP sectoral projects. This cross-
IV
review assessment, Federal constructed or rehabilitated: progress and 10% of total GTP cutting approach will be
 Transport Sector Project In
quality assurance, zero (revised at CPSPR) funding. The Bank's financing of applied in the CPF.
Support of RSDP4
contract Target: rural roads has resulted in
 Road Sector Support Project
management, Federal constructed or rehabilitated: construction or rehabilitation of
RSSP
safety 1,008 km (revised at CPSPR) roads almost identical to GTP
 Urban Local Government Notwithstanding great
enforcement, and target.
Development Project progress in boosting the
safeguards Progress to date:
(ULGDP) number of rural and urban
compliance. ERA 803 km  ERA Quality Assurance
 Local Govt Dev Project II people with improved
needs to be System implemented
 Productive Safety Nets III
modernized to Indicator 9: Additional km of rural access  ERA Maintenance sanitation, and the role of
roads constructed and/or rehabilitated to (PSNP)
deliver high quality Management System WSSP in providing training to
fair and good condition  Agricultural Growth Program
roads at improved community leaders) greater
Baseline: 800 km (AGP)
competitive cost. precision is needed in defining
Target: 71,500 km  Protection of Basic Services
Both systems are in place and
Phase III indicators such as “improved
final operational manuals are
Progress to date: prepared; Both systems are being  Pastoral Community sanitation” to allow for
67,895 km enhanced to the maximum Development (PCDP) III accurate M&E of results.
efficiency.
Knowledge Services
 ERA Cost Monitoring System  Urban & Metropolitan The Inspection Panel (IP)
implemented Transport Review
findings regarding PBS III
 Road Construction Cost
Study highlights the need for risk-
PMS study has been completed. mitigation measures for
Selection of consultants for FM is  Systematic Country
Diagnostic communities affected by GoE
finalized and the contract was
signed.  Rural Accessibility to Solve policies such as villagization.
Development Constraints The Management Response
 Increased routine to the IP acknowledged the
maintenance contracts Planned for FY15 and FY16 need for more extensive risk
implemented Financing
analysis.
 Rural Infrastructure Support
(PforR) Project

96
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
APL III has provided TA to develop  Expressway Development
Trial OPRC Maintenance Contract.  Urban Transport & Planning
The consultant has submitted all Project
deliverables to ERA and the
service is complete. Completed
Financing
 Urban road construction  Pastoral Community
Development Project II
Some 670 kilometers of urban  Protection of Basic Services
roads have been constructed (PBS) II
since FY09 by ULGDP.
Partners
 AfDB, EU, JICA, DFID, China,
BADEA

 Low coverage Outcome 3.3 – Increased access to  User groups’ capacities to On-going
rates, particularly improved water and sanitation services operate and maintain water Financing
in emerging in urban and rural areas sources strengthened  Urban Water Supply &
regions. Sanitation (UWSS)
 Utility Indicator 10: Additional people provided WSSP has established the woreda  Water Supply, Sanitation and
inefficiencies with improved water resources in water and sanitation teams in 224 Hygiene (WASH)
largely due to selected urban and rural areas woredas. In addition, the program  Local Govt Dev Project II
underpricing and Baseline: zero has established autonomous  Urban Local Govt
distribution losses Target: 4.2 million water boards in 50 town/urban Development (FY08)
(typically around areas. These capacity-building  Protection of Basic Services
40% compared Progress to date: approaches have influenced the Project Phase III
with 33% in other 17,845,569 GOE’s policy on the sector and  Pastoral Community
LICs in Africa) and other Development Partner Development Project (PCDP)
above good Indicator 11: Additional rural/urban Programs. III
practice levels people with improved sanitation
(below 23%) for (latrines)  Urban water utilities’ Planned for FY15 and FY16
developing Baseline: zero capacities to manage and
Financing
countries (AICD, Target: 4.5 million implement business plans
2008). strengthened  Regional Pastoral Livelihoods
 Inadequate Progress to date: Resilience Additional
assessment, 3.3 million households So far, all participating cities Financing for Ethiopia
development and (Addis and 5 secondary cities)  Rural Infrastructure Support
management of have developed their business (PforR)

97
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
groundwater plans and been implementing Knowledge Services
potential them.  Water and Sanitation
Economic Benefit Analysis

Completed:
Financing
 Water Supply and Sanitation
Project

Partners
 WSP, Finland, DFID, Italy,
UNICEF, AfDB, EU, France
CPS Strategic Objective 4: Enhance Regional Integration
GTP Goals:
1. Export power to neighboring countries
2. Produce sufficient food crops and high value products for international markets
3. Integrate into the multilateral trading system through, inter alia, completing WTO accession, strengthening regional trade
integration with IGAD and COMESA, conclude EPA with EU
 Limited generation Outcome 4.1 – Improved Eastern Africa  Transmission line from On-going
capacity for power Power Pool Mechanism Ethiopia power grid to Kenya Financing Complex procurement and
export to region. designed and under  Eastern Electricity Highway approval processes, from
Indicator 12: Total quantity of electricity construction by 2016. Project utilities and governance
exported in GWh bodies in two neighboring
Baseline: 33 GWh (to Sudan) There is no result yet, as this Planned for FY15 and FY16 countries, led to prolonged
Target: 1,401 GWh (569 to Djibouti + 832 project is still in the bidding Knowledge Services project delays. Results
to Sudan) process. The Ethiopia-Kenya  Systematic Country indicators for future projects
interconnector was expected to Diagnostic such as this should reflect the
Progress to date: begin trading with 7,000 GWh of risks associated with such
781.88 GWh power exported to Kenya at the Completed complexity.
beginning of 2017. Financing
 ET/SU Interconnection

Partners
 AfDB, AFD (France)
 Inefficient Outcome 4.2 – Enhanced involvement in  Regional Center of Excellence On-going
dissemination of regional agriculture technology in Wheat established in Financing
agricultural generation and dissemination Ethiopia  Eastern Africa Agricultural
Productivity Project

98
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
technologies Indicator 13: Number of existing and new WRCoE is established to organize
across countries. technologies from Ethiopia disseminated and lead the wheat research and Planned for FY15 and FY16
 Weak regional in more than one EAAPP country development efforts in the Financing
capacity of the compared to plan regions. Improved wheat  Regional Pastoral Livelihoods
regional centers of Baseline: 37 (revised at CPSPR) technologies and germplasms of Resilience Additional
excellence. Target: 82 (revised at CPSPR) improved wheat varieties are Financing
 High impact of shared with the program
transboundary Progress to date: 57 countries. In addition, as a Knowledge Services
pests and diseases. regional resource and knowledge  Systematic Country
hub, it also provides training on Diagnostic
wheat production techniques
both for technical staff and for Partners
beneficiaries in Ethiopia and the  USAID/VOCA (wheat value
region. chain), Japan (rice), CGIAR
(wheat, rice and cassava).
 Continued cooperation of
Ethiopia agricultural research
and extension with regional
agricultural institutions
(ASARECA).

A total of 27 regional agricultural

research projects were
implemented as of FY13.

PILLAR 2: ENHANCED RESILIENCE AND REDUCED VULNERABILITIES

CPS Strategic Objective 5: Improved Delivery of Social Services

GTP Goals:
1. Improve access to and quality of health services:
 Maternal mortality rate (per 100,000) decreased from 590 in 2010 to 267 in 2015
 Under five mortality rate (per 1000) decreased from 101 in 2010 to 67 in 2015
2. Improving access and quality of education:
 Secondary gross enrollment ratio increased from 38.1 % in 2010 to 75% in 2015

99
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
Despite some good Outcome 5.1 – Increased Access to  Increase in Health centers On-going
progress in reducing Quality Health Services having functional cold chain Financing
child mortality, Ethiopia equipment (%)  Health MDG Support (PforR)
is facing significant Indicator 14: Penta 3 vaccination  Protection of Basic Services
challenges in scaling up coverage As per the cold chain inventory (PBS) Project Phase III
evidence-based Baseline (2013): 65.7 % (revised at 2013, the non-functionality of
interventions to reduce CPSPR) refrigerators ranges from as high
maternal deaths. The Target (2016/2017): 75.7% (revised at as 81.7% to as low as 40.6%. Knowledge Services
gains made in child CPSPR) MoH immunization logistics  Social Health Insurance
mortality reduction also coordination team has confirmed  Case Study for Universal
need to be sustained Progress to date: Not Verified (pending that the current functionality is Health Care
and further enhanced. information from the ongoing DHS, 85% as nonfunctional
 Lack of 24/7 which will conclude by end 2016). refrigerators had been maintained Planned for FY15 and FY16
delivery services in by the national CCE maintenance
Financing
most health Indicator 15: Proportion of births campaign.
facilities, attended by skilled health personnel  Health Sector Additional
Financing
especially, health Baseline (2014): 10%  Increase in Health Centers
centers. Target (2015/2016): 18% providing round the clock
Knowledge Services
 Shortage, high delivery services (%)
turnover and Progress to date: 16%  Health Finance Programmatic
insufficient skills of % of public facilities offering Work
midwives and Indicator 16: Contraceptive Prevalence normal delivery services that have  Health and Education Service
delivery Rate provider of delivery care available Delivery Quality
attendants. Baseline: 29% on site or on call 24 hours/day,
 High unmet need Target: 35% with or without observed duty Completed
for family planning. schedules is 95. Financing
Progress to date: 42%  Protection of Basic Services
 Reduced stock out of long (PBS) Phase II
acting contraceptives at  Nutrition SIL
health facilities (%)
Public facilities: IUCD 21 % out of Knowledge Services
stock. Implant 12.4 % out of stock  PSIA of the PBS
 Health Results Innovation
 Growth, monitoring,  IE of the health facility
promotion (GMP) and performance incentives
community conversations  China/Ethiopia/WB
conducted regularly HealthCollab. (FY12)
 International Health
Partnerships Program
 ICT for Transformation

100
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
Proportion of children 6-59
months screened for malnutrition Partners
27%;  All partners supporting the
0-24 Month Growth Monitoring Health Sector Development
(GMP) 54% Program IV and in particular
those financing the MDG
performance fund (DFID,
Spanish Corporation, Italian
Corporation, Irish Aid,
UNFPA, UNICEF and WHO).
 Low quality of Outcome 5.2 – Increased Access to  Increased primary On-going
education resulting Quality Education completion rate Financing CPSPR noted that despite
from, inter alia,  ET GEQIP II improved access to education,
inadequate  Protection of Basic Services the quality of services remains
number of Project (PBS) Phase III a challenge. The focus on
teachers, quality of learning outcomes,
insufficient Planned for FY15 and FY16 teacher qualifications, and
number of Financing gender-disaggregated learning
qualified teachers, outcomes will be highlighted
 Basic Service Delivery
inadequate in the CPF Results Framework.
number of
Knowledge Services
textbooks.
 Education Sector Financing
Although gender featured
 Education Learning prominently in the CPS
Achievement (reflecting the focus in GTP I),
 Health and Education Service there were no sex-
Delivery Quality disaggregated indicators in the
Results Framework (RF). The
Completed CPF RF will feature a greater
Financing focus on gender-linked
 Protection of Basic Services indicators.
Phase II (FY09)
 General Education Quality
Improvement Project - APL 1
 EFA FTI CF Grant 2 - GEQIP
APL 1
Knowledge Services
 Secondary Education
 ICT for Transformation

101
 CPS OUTCOMES and INDICATORS WORLD BANK LESSONS & SUGGESTIONS for
ISSUES AND OBSTACLES (with 2011 baselines and end-FY16 INDICATIVE MILESTONES GROUP PROGRAM the FORTHCOMING CPF
targets) (FY15-FY16)
Indicator 17: Percentage of students Primary completion rates (PCR)
attaining basic competency have decreased after a strong Partners
increase in the over the last CAS Global Partnership for
Baseline (2006/07): cycle. Between 2012/2013 and Education, DFID, Finland,
2014/2016, the primary school Italian Development
Grade 4: Reading in English 48%; completion rate (grade 8) has Cooperation, USAID, JICA,
Mathematics 46% decreased from 52.8% to 51.3%. UNICEF, Russia.

Grade 8: English 40%; Mathematics 40% Improved primary pupil to

textbook ratio
Target (2015/16):
In 2013/14, pupil-book ratio of
1:1 or better was achieved in
Grade 4: Reading in English 58%;
seven subjects of primary
Mathematics 56%
education, and thirteen subjects
of secondary education provided
Grade 8: English 50%; Mathematics 50%
by GEQIP1. GEQIP2 is currently
supporting replenishment of
Progress to date: these textbooks to maintain the
Grade 4: ratio. Data is not available for
English: 47% current status.
Mathematics: 63%
Increased percent of
Grade 8: primary teachers with
English: 74% appropriate qualification and
Mathematics: 68% teacher/pupil ratio

“Reading in mother tongue” components

Percentage of qualified primary
were revised to “Reading in English” due
teachers (i.e., teachers with at
to the lack of data.
least a certificate qualification)
has increased from 64.7% in
FY1213 to 91.5% in FY14/15 for.
Percentage of qualified secondary
teachers has decreased from
91.5% to 91% in the same period.

From FY12 to FY14,

teacher/pupil ratio (Grade 5-
8) has increased from 1:51 to
1:49.

102
 ANNEX 3: GTP II OBJECTIVES AND INDICATORS

GTP Vision for Ethiopia

“The main basis of GTP II is the country’s vision to become a lower middle-income country by 2025. In
the coming 10 years, Ethiopia's vision is to reach the level of lower middle-income countries where
democracy, good governance and social justice are maintained through people's participation.”

GTP Objectives
1. Maintain macroeconomic stability and achieve average real GDP growth rate of 11 percent;
2. Boost competitiveness of the domestic productive sectors in agricultural and manufacturing
industries for greater structural transformation;
3. Promote further public mobilization for ownership of development outcomes;
4. Ensure a stable democratic developmental state.

GTP Pillars
1. Sustain rapid and equitable economic growth and development;
2. Increase productivity and competitiveness of agricultural and manufacturing sectors;
3. Enhance transformation of domestic private sector;
4. Bridge infrastructure gaps through the domestic construction industry;
5. Manage urbanization as part of the structural transformation of the economy;
6. Enhance human development and sustainable technological capacity building;
7. Enhance democratic good governance and public participation;
8. Promote women and youth empowerment;
9. Build climate-resilient green economy.

103
 ANNEX 4: SELECTED INDICATORS OF WORLD BANK PORTFOLIO PERFORMANCE AND MANAGEMENT
(*FY17 as of 05/22/2017)

Indicators FY 13 FY14 FY15 FY16 FY17 *

Portfolio Assessment
Number of Projects Under Implementation 21 24 23 26 30

Average implementation period (Years) 4.1 3 2.9 3.1 3.2

Percent of Problem Projects by Number 28.7 17.3 16.6 11.5 10.0

Percent of Problem Projects by Amount 14.2 7.4 6.0 10.7 10.0

Percent of Projects at Risk 11.5 14.3 19.2 10.7 9.4

Disbursement Ratio (%) 48 41 26 22.3 20.0

Portfolio Management
CPPR during the year (Yes/no) No No No No No

104
ANNEX 5: IDA OPERATIONS PORTFOLIO (AS OF MAY 22, 2017)

105
 ANNEX 6: IFC STATEMENT OF HELD INVESTMENTS

IFC Investment Program (As of April 30, 2017)

Committed - Outstanding -
IFC (US$ IFC (US$
Project Sector million) million)
36565-GTST Ethiopia 3 Finance & Insurance 21.0 21.0
35938-Afriflora Agriculture and Forestry 46.0 46.0
33523-africaJUICE Food & Beverages 2.75 0.35
33201-Tsemex Hotel Accommodation & Tourism Services 9.4 4.67
26410-Midroc Derba Nonmetallic Mineral Product Manufacturing 11.0 11.0
Ethiopia 90.2 83.0

IFC’s committed balance in Ethiopia totaled US$90.2 million as of end-May 2017, of which US$83.0
million of the disbursed was outstanding.

IFC Advisory Program (as of March 31, 2017)

Total
Funds
Managed
by IFC
Project (US$
ID Project Name Owning Department Code millions)
599466 Ethiopia IC: Trade Logistics Project Trade and Competitiveness 2.1
599467 Ethiopia IC: Business Taxation Project Trade and Competitiveness 1.3
599468 Ethiopia IC: Business Regulation Trade and Competitiveness 1.6
600201 Lighting Africa Ethiopia Cross-Industry Advisory 3.2
Services
600316 Ethiopia Investment Policy Trade and Competitiveness 1.8
600666 Sub Saharan Africa Credit Bureau Finance and Markets 1.1
African Countries Consolidated
601053 Ethiopia - Livestock - MIRA Trade and Competitiveness 2.1
601293 IB Challenge Prototype - LUNA Development Impact 0.1
601522 Secured Transactions & Collateral Finance and Markets 0.5
Registries Ethiopia
601584 Ethiopia Scaling Solar Cross-Industry Advisory 2.1
Services
601633 Ethiopia Nespresso Coffee Manufacturing, Agribusiness 3.2
& Services
601995 LUNA Livestock and Out-Grower Manufacturing, Agribusiness 3.0
Development Project & Services
Grand
Total 22.0

106
 Annex 7: MIGA PORTFOLIO

Gross
Management Investor Project Business Region Host Priority Risk
Investor Exposure
Country
Sector Name Name Sector Name Country Area Covers
($USD)
Industrial Africa Sub-
AGS Development Corp. Juice Agribusiness Saharan Ethiopia South Africa IDA TR;EXP;WCD 4,782,501
of South Africa TSC Africa
Africa Sub-
AGS Africa Juice BV Juice Agribusiness Saharan Ethiopia Netherlands IDA TR;EXP;WCD 4,092,000
TSC Africa
Alvima
Import Sub-
Mr. Dirieh Ali
AGS and Manufacturing Saharan Ethiopia Djibouti IDA EXP;WCD 5,409,468
Mawel
Export Africa
PLC
Grand Total 14,283,969

107
 ANNEX 8: SPATIALLY INCLUSIVE GROWTH IN ETHIOPIA

1. The World Development Report in 2009, “Reshaping Economic Geography”, put forward a
policy framework to gauge spatially inclusive development. Combining this with insights from
literature on pro-poor growth, a background study to the CPF evaluated Ethiopia’s current challenges
and suggested policy options to ensure spatially inclusive development. This study primarily defined
the way the CPF tries to address the spatial challenges in Ethiopia over the next five years. The note
found that poverty and human development indicators display spatial disparities across and within
regions in Ethiopia. While agricultural growth has contributed significantly to overall GDP growth,
access to key inputs driving agricultural growth is not evenly distributed across regions. Similarly,
medium and large-scale firms are also concentrated in a central belt in Ethiopia, with the
concentration increasing towards the capital and towards the north. Finally, development of roads
over a ten-year period between 2006 and 2016 displays the same pattern of concentration towards
the center and north of the country. This suggests that remote areas lag behind and have not been
able to catch up in relation to the rest of the country. These findings are in line with the key message
of the WDR 2009: growth tends to be unbalanced.

Spatial development outcomes can be increased through interventions in three areas:

2. Expanding productivity in the agricultural sector. An important way to integrate rural

populations into the growth process is by engaging them in the agricultural sector, as agriculture
has been and will be one of the key drivers of rural growth, poverty reduction and employment.
When GDP was growing at an annual rate of 10.7 percent over the last decade, the agricultural sector
grew at an average annual rate of 7.6 percent and accounted for 47 percent of GDP on average. It was
the largest contributor to GDP until services took over in 2010/2011. Within agriculture, growth was
dominated by the crop production subsector. In contrast to other countries, there is no single
dominant crop in Ethiopia, although primary products, mainly coffee and oilseeds, make up most of
the export earnings. Therefore, the story of Ethiopia`s remarkable growth has been linked to the
strong growth in the agricultural sector, and agriculture will remain critical to engage a large part of
the population into the growth process.

3. More connective infrastructure to increase market access for farmers and more and better
services through spatially neutral institutions (national programs). The SCD found that poor market
access for farmers is a binding constraint to rural income growth, which is consistent with the WDR
2009 framework that rural connectivity is key in overcoming spatial inequalities. Road infrastructure
is a major, but not the only, constraint to market access. Although the national roads network in
Ethiopia quadrupled in size from 1997 to 2015, road density in Ethiopia remains the lowest in Africa.
Cross-country regressions predict that the best policy for growth going forward is continued
infrastructure investments to address this deficit. Further road investments have the potential to
accelerate poverty reduction for the poorest households who carry the largest burden of remoteness.
Poverty rates increase by 7 percent with every 10 kilometers of distance from a market town. From
2005 to 2011, agricultural growth caused poverty to fall by 4 percent for those far from urban centers
compared to a 26 percent decline in poverty rates for those living closer to cities. If these results can
be extrapolated, poverty would have fallen six times more quickly for remote households had their
travel time to urban centers been reduced through improved transport options. Efficient markets, that
allow farmers to purchase inputs at low prices and receive a fair price for the goods they produce and
sell, provide incentives for agricultural investment. Addressing remoteness also helps increase rural
non-farm income growth. Both of these can be addressed by strengthening satellite cities in areas
with dense rural populations. This will have the effect of increasing market access and opportunities.
Analysis on the continuous effects of connectivity on employment show that well-connected rural
woredas perform better, highlighting the importance of connectivity to promote spatially inclusive

108
growth. In sum, microeconomic evidence finds that remoteness is the second-most cited constraint
to rural income growth.

4. Ethiopia should also strengthen spatially neutral institutions that provide services of equal
quality to all populations in all areas through national programs. Such institutions are the vehicle to
provide basic amenities and social services to all residents, regardless of their location, social group or
economic status. According to the WDR 2009, spatially neutral institutions that will facilitate economic
density should be the bedrock of integration policies. In cases where it is not yet clear which places
will be favored by markets, neutrality between places is important. Spatially neutral institutions
involve the range of programs, policies and expenditure priorities of the public sector that intend to
enable all residents to achieve their full potential as individuals – basic education, primary health, safe
water and sanitation, access to infrastructure, and security. Institutions also include those that enable
markets to function, those that allow businesses to flourish. Institutions that provide basic services,
especially in remote/lagging regions need capacity building support to ensure efficient delivery of
services. This is important to ensure that spatially neutral policies driven by the federal government
can yield homogenous results across the board.

5. Actively managed urbanization. Ethiopia’s prospects for spatially inclusive growth critically
depend on urban planning and urbanization as this process facilitates structural transformation and
high productivity jobs creation. Urbanization could be an important catalyst to promote growth,
create jobs, and connect Ethiopians to prosperity. But rapid urban population growth may also pose
a demographic challenge as cities struggle to provide jobs, infrastructure and services, and housing.
Integrated planning and improved land management to facilitate investments in infrastructure and
services will be essential to ensure urbanization is better managed. Rigid and static land use planning,
typical for many countries, is giving way to more market-responsive systems, and the current
Ethiopian Urban Plan Preparation and Implementation Strategy already signals a positive shift. In
addition, more and better urban safety nets can help to make the urbanization process more inclusive.

6. Secondary cities can be engines of growth and job creation, particularly if they can facilitate
labor-intensive industries. Agglomeration matters for firm performance. A percentage point increase
in the clustering of firms of the same industry within a city leads to an 8.3 percent increase in
employment growth. Clusters with higher levels of inter-industry diversity lead to higher probability
for faster growth by incumbent firms, irrespective of their size or ownership. In fact, the depth and
variety of skills needed to fulfil the targets of GTP II and transform Ethiopia into a manufacturing hub
are more likely to be found in or close to cities, where there is a diverse labor pool. In addition,
activities that are part of global value chains are likely to be found in mostly large cities. Yet, while
cities in Ethiopia already play an important role in the economy, contributing 38 percent to gross
domestic product (GDP), they only employ 15 percent of the total workforce. One reason for this is
the capital-intensity of production. Rapidly growing cities such as Mekele and Sebeta attract industrial
firms primarily in medium and high capital-intensive industries, while larger, more well-established
economic centers such as Dire Dawa attract more labor-intensive industries. But these smaller,
secondary cities need to be at the forefront of the rural-urban transition, and for that more labor-
intensive industries will be needed in those cities to increase the possibility for more balanced,
spatially inclusive growth. Addis Ababa is still the number one choice for migrating rural-dwellers, with
around 40 percent of them migrating to Addis Ababa in the five years prior to 2013.

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ANNEX 9: SYSTEMATIC COUNTRY DIAGNOSTIC (SCD) FOR ETHIOPIA

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 ANNEX 10: DONOR MAPPING54

54
This table does not include some of the important emerging development partners such as China and Saudi Arabia.

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 ANNEX 11: GENDER FILTER FOR THE WORLD BANK GROUP ETHIOPIA PORTFOLIO

Overview and objectives

1. The World Bank Group’s corporate gender ratings for the Ethiopia portfolio indicate that 94
percent of operations approved during the FY13-FY16 CPS period were rated as gender-informed
across all three scoring dimensions: analysis, actions, and M&E. However, these ratings provide a very
low bar and do not distinguish between superficial (“box ticking”) inclusion of gender in PADs and a
deeper integration of gender issues that really adds value to projects by facilitating the achievement
of development objectives. The need to deepen the approach to gender is all the more urgent in
Ethiopia, given: (1) the country’s relatively poor performance across many gender issues, such as
maternal mortality, fertility, gender gaps in education, gender gaps in the labor market and in
entrepreneurship, gender-based violence/female genital mutilation, women’s lack of representation
in leadership positions and women’s lack of voice generally; and (2) the decision by the Gender Cross-
Cutting Solutions Area (CCSA) to put in place a new system for monitoring gender in operations (the
“gender tag”) which places greater emphasis on identifying projects which employ a coherent
approach to gender through the entire results chain.

2. To ensure that operations deepen attention to gender, so as to improve the effectiveness of

projects, the CMU will implement a gender filter. The filter is intended to act as a guide to help task
teams ask the right questions, as early as possible in the design stage of operations55, while imposing
a minimal additional work burden.

Implementation

3. The Ethiopia gender filter will be implemented by the Ethiopia country gender focal point. The
gender focal point will engage with task teams early in the design stage (before formal concept note)
and provide their expertise to make project design more gender friendly, broadly guided by the
questions listed in section 4.

4. The gender focal point will provide the following support at the design stage: (1) meeting with
team members to help them think through the potential gender aspects of the project prior to writing
the concept note; (2) written inputs for/comments on project documents before and after review (CN,
PAD); (3) attending project review meetings (virtually or in person) to ensure wider discussion and
awareness of key gender issues and of the objectives of the gender filter; (4) connecting the project
team to additional gender experts (World Bank staff, client staff, NGOs, academics) where this can
provide added value.

5. Depending on demand and budget availability, a selected number of projects may also be
provided with implementation support. Such support may include the country gender focal point: (1)
joining project supervision missions; (2) providing inputs for and comments on mid-term and
completion reviews.

6. During all stages of engagement with task teams, filter inputs will be as concise, operationally
relevant (directly linked to project development objectives and results), and actionable as possible.
Lessons from the implementation of the governance, conflict, and gender filter for the World Bank’s
Nigeria portfolio show that this is essential to maximize the likelihood that filter inputs gain traction.

55
The initial proposal is for support to operations. The experience of a similar filter used with the
World Bank’s Nigeria portfolio suggests that influencing analytical work is more problematic.

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M&E

Outcome/Output Indicator Target (end Target (end

FY18) FY19)
Outcome indicators
Improved % of new project concept notes which 50 75
effectiveness of reflect inputs from gender filter
World Bank’s (among those for which inputs were
portfolio in provided)
Ethiopia % of new project PADs which reflect 50 75
inputs from gender filter (among
those for which inputs were
provided)
% of projects which adjusted activities 50 75
during implementation to reflect
advice from gender filter (among
those for which adjustments were
recommended)
Output indicators
Increased % new projects which receive inputs 50 75
resources from gender filter during project
directed to design
gender
mainstreaming of
the World Bank’s
Ethiopia portfolio

Ethiopia Gender Filter Guiding Questions

7. The inputs provided by the gender filter will be guided by the questions presented in the table
56
below .

Question Group 1: Framing the problem

Question Comments/additional details
Is the problem at the heart of the development Even if the problem is not, on the surface, a
objective rooted in or worsened by gender gender issue. For example, if the main problem
roles and disparities? is access to transport, but it may be exacerbated
for women because of their personal safety
concerns.
Are there specific groups of women and men For example, different issues by ethnicity,
affected by different gender roles and region, religion, marital status, or for migrants.
disparities?
Does the operation draw on existing gender
data/analysis or will it carry out new data

56
These questions have been adapted from those used in the Nigeria “Governance, Conflict and
Gender Filter”, which was developed for the World Bank’s Nigeria portfolio in FY2012 and funded by
DFID through the Governance Partnership Facility (GPF).

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collection or consultations to inform the
design?
Does the project use clear language and For example, the project should avoid using
include explicit details of the gender related vague language such as: “women are a
issues that have been identified? vulnerable group”. Instead the project should
explicitly and clearly state what the constraints
are that women face and how these are
relevant to achievement of the project
objectives.
Question Group 2: Tailoring the solution
Question Comments/additional details
Does the design of the project account for the For example, different issues by ethnicity,
specific gender dynamics among specific region, religion, marital status, or for migrants.
groups of women and men?
Does the project propose specific actions to
address the distinct needs of women and girls
(or men and boys) identified in analysis?
Does the project use clear language and For example, the project should avoid using
include explicit details of how the project vague language such as: “there will be a focus
design responds to the specific needs of on women” or “women’s participation will be
women and men as identified in analysis. encouraged”. Instead the project should clearly
and explicitly state how its intentions to address
gender issues will be achieved.
Does the project include provisions in the plan
of acquisitions and/or operations manual to
promote gender equality in economic
opportunities (employment, SMEs service
provision, etc.), through the
contracting/acquisitions process?
Question Group 3: Implementation
Question Comments/additional details
What incentives exist for counterparts to For example, indicators on the gender aspects
deliver on gender aspects? Are sufficient of the project are clear and measurable and are
accountability mechanisms in place? included in the core project results matrix
against which the overall success of the project
will be rated.
What resources (including staff) is the For example, has the gender focal point in the
counterpart employing to oversee counterpart’s ministry been placed on the core
implementation of gender aspects? project team in the PIU? Is there a specific
gender budget for the project?
Is there a gender expert in the core project For example, if the project is being
team at the level at which the project is implemented by regional level counterparts, but
actually being implemented? project member with gender expertise is sitting
at the federal level, the project should explain
how the team can be confident that
implementation on the ground of the gender
aspects will be sufficiently overseen.
Does the project intend to use citizen
engagement to monitor implementation? If so,
what measures are proposed to ensure that
women and men are heard?

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 Question Group 4: Risks
Question Comments/additional details
Is the project expected to cause a change in For example, by giving women greater control
gender dynamics? over household resources.
If so, how are different parties expected to For example, is it expected to lead to tension
react? between husbands and wives or to cause an
increase in domestic violence?
Could project activities expose beneficiaries to GBV may include intimate partner violence
a greater risk of gender-based violence? (IPV), sexual assault, female genital mutilation,
or child marriage. For example, IPV may result
from empowering women or activities
perceived as threatening men’s/women’s
traditional roles, and sexual assault risks may
increase as a result of migration of male
workers to work on project activities in areas far
from their families. For more detailed guidance
on GBV risks and potential risk mitigation
measures, see:
http://www.vawgresourceguide.org
What measures are proposed to mitigate any
gender related risks?
Question Group 5: Results and Learning
Question Comments/additional details
Does the project monitor beneficiary impact by This does not mean number of beneficiaries by
sex? sex, but differences in outcomes for women and
men (e.g. change in income, assets,
employment, health, learning, etc).
If there is a target for female beneficiaries, Is the target realistic? Is the target unambitious?
how was the target decided upon? What is the current level of women’s
participation in the specific
sector/industry/activity that the project is
targeting?
Will sex disaggregated and gender indicators
be captured not only in PAD but also in
ISRs/ICR?
If there is a gap in the evidence base on the
gender constraints likely to impact
achievement of project objectives, can the
project help to fill this gap through data
collection and/or impact evaluation?

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 ANNEX 12: CPF CONSULTATIONS

1. The CPF has been developed in partnership with the GoE and reflects close consultations
with a broad range of stakeholders. Consultations for the CPF took place during the period May 2016
through February 2017, focusing on how best to leverage the comparative advantage of the WBG and
other development partners to support Ethiopia’s development objectives as articulated in GTP II and
maximize the impact of the WBG during this CPF period.

2. The preparation of the CPF also benefited from meetings with stakeholders during
preparation of the CLR. These discussions took place in May 2016 and focused on soliciting feedback
from which to draw lessons from implementation of the CPS (FY13-FY16).

3. Engagement with stakeholders focused on how the WBG can best support the development
goals of the GTP II while maximizing the effectiveness of the WBG resources – financial support,
knowledge work, and the WBG convening role. Between May 2016 and February 2017, three
individual rounds of consultations were conducted in Ethiopia. This outreach was conducted in a
variety of formats including formal and informal consultations, multi-stakeholder engagement, public
outreach, country opinion survey, and blog contest.

4. Formal consultations: Meetings took place with the Ministry of Finance and Economic
Cooperation (MoFEC), as well as a broader engagement with a full array of federal government
ministries and departments. These discussions were intended to confirm the relevance of the
proposed strategic focus for the CPF and the proposed interventions to achieve them. In addition to
meetings with federal-level officials, CPF teams traveled to regional capitals to engage with
government officials from Amhara, Oromia, Gambella, Somali, Harari, Tigray, Afar, SNNPR,
Benishangul Gumuz, as well as Dire Dawa. Discussions focused on regional-level development
priorities.

5. Informal consultations: Meetings with bilateral and multilateral development partners were
intended to identify opportunities for complementarity and strengthened partnership, as DPs were in
the process of preparing their respective strategy documents to guide their engagement with Ethiopia.
A number of DPs expressed appreciation for the WBG analytical work (notably the SCD and Great Run
report) and the opportunity to be consulted on the proposed focus areas of the CPF.

6. Multi-stakeholder engagements: The WBG CPF team met with representatives of the
Ethiopian private sector, civil society organizations, academia and think tanks, which yielded a rich
array of comments and suggestions for the World Bank’s engagement in Ethiopia.

7. Public outreach: To complement the consultations with government officials and the groups
listed above, the WBG also sought the views of Ethiopian citizens on the challenges and opportunities
facing Ethiopia, areas in which the WBG should focus its efforts, and how best to support the GoE
aspiration to achieve lower middle-income status by 2025. An on-line consultations platform was
created on the World Bank’s Ethiopia Country website, which allowed for anonymous comments and
suggestions on the CPF. By the end of the month-long consultation period (August 8 – September 8,
2016), 665 comments had been submitted. Posts addressed issues such as governance, political
freedoms and distribution of wealth in Ethiopia; corruption and institutional capacity; the need to
transform agriculture; weaknesses in the education system; and liberalization of trade, the financial
sector and economic competitiveness.

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8. A Country Opinion Survey (conducted in FY15) solicited feedback from 290 stakeholders
spanning the full range of government, civil society, academia and the private sector. A total of 146
stakeholders participated in the survey – a 50 percent response rate – answering questions on such
topics as their familiarity with the WBG, was Ethiopia headed in the right direction, Ethiopia’s
development priorities, overall effectiveness of the WBG as well as effectiveness of the WBG in
sectoral areas, and how to make the WBG of greater value. Questions also sought views on activities
to which the WBG brought the greatest value and which WBG instruments were the most effective
and which sectors were most important for reducing poverty. There were particularly strong
responses to questions on the “WBG’s greatest weaknesses” in its work in Ethiopia; as well as
questions on sectors in which the WBG is effective, the relevance of the WBG role in development in
Ethiopia.

9. A blog contest was held during summer 2016 to invite Ethiopian youth to share innovative
ideas on their vision for the country’s development agenda. The WBG Ethiopia Country Office
launched the competition framed about the question ‘How Ethiopia can reach middle income country
status without leaving anyone behind’? More than 100 university students submitted entries and
three winners were selected. Each of the three winning blogs was posted on the World Bank internal
website.

CPF Federal Level CPF Regional

Consultations Consultations

Academia/Think Thank
Addis Ababa Afar
BBL
Amhara Benishangul-Gumuz
Civil Society
Gambella Dire Dawa
Donor Partners
Harari Oromia
Federal Government SNNP Somali
Tigray

10. Across the various groups of stakeholders, common themes and priorities emerged:

 Strengthen the early years’ agenda by focusing on a package of interventions on basic education,
maternal and child health, and nutrition for early stimulation and cognitive development.

 Focus on youth, especially women by providing access to financial services and credit, setting up
centers of excellence, providing skills training in the manufacturing sector, as well as training in
professional life skills, to fully capture the country’s demographic dividend.

 Enhanced business climate with better access to finance, infrastructure, and reliable energy is
needed to encourage the domestic as well as foreign private sector.

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 Attention to secondary cities and small towns is important – including support for roads, water
and sanitation, basic service delivery, as well as focus on the small and medium enterprises to help
build a vibrant private sector that will create jobs.

 Since agriculture continues to the backbone of the economy, there needs to be a focus on
improving productivity, providing market access, and encouraging farmers to take up measures
that encourage move from subsistence to commercial farming.

 Continue and strengthen the program on social safety nets and especially in areas that are hosting
large population of refugee communities from neighboring countries.

 Restore degraded landscapes and improve resilience to natural disasters by providing alternative
means of livelihoods as well as sustainable sources of energy.

 Strengthen citizen engagement, not just in World Bank projects, but also build platforms that
create accountability, transparency and greater public participation.

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 ANNEX 13: INFORMATIONAL ANNEX ON FORCED DISPLACEMENT IN ETHIOPIA

A. Background

Key elements of context

1. With about 800,000 refugees, Ethiopia hosts the fifth largest refugee population in the world
and the second largest in Africa, after Uganda. In a region affected by conflict and violence, and in
spite of its own difficulties, Ethiopia has maintained a generous “open door” policy to refugees, which
has deep roots in the country’s history and is consistent with its ambitions on the regional scene. Most
refugees are hosted along Ethiopia’s borders, often in isolated and lagging regions, with over 20,000
residing in Addis Ababa and other urban centers

2. Ethiopia’s hosting of refugees is taking place against the backdrop of a fast growing
economy. Ethiopia remains a low income country with poor human development indicators,
significant challenges in creating jobs for a young population, and a susceptibility to climate shocks
(including a likely drought in 2017). Yet its economic progress over the last decade provides a favorable
environment for socio-economic inclusion, even though most refugees are located in peripheral
regions that are still in the process of “emerging”. There is a strong opportunity, increasingly
recognized by the Government, to link a response to the refugee crisis to its job creation agenda and
its regional development strategies, notably for the four “emerging regions” where most refugees are
hosted.

3. Ethiopia is one of the hosting countries that most relies on camps:

 Most refugees are accommodated in 25 camps located across the country. The camps are
managed by the Administration for Refugees and Return Affairs (ARRA,) with support by
UNHCR and other humanitarian partners. ARRA is also part of the National Intelligence and
Security Service (NISS) and operates with a great degree of autonomy. UNHCR contributes to
the financing of ARRA’s humanitarian role.

 Refugees have limited socio-economic rights. They are expected to remain in the camps (and
are subject to arrest if they move without a ‘camp pass’); they do not have the right to work
(which is relatively well enforced), and they cannot open bank accounts, obtain a driver’s
license, etc. They survive on humanitarian aid (food provided by the World Food Program and
non-food items mainly by UNHCR), which in some situations has created a dependency
syndrome. Services (e.g., education, health, water) are delivered through a parallel system
coordinated by ARRA with minimal involvement by line ministries.

 The reality on the ground is complex and often dire. In a context of shrinking humanitarian
resources, food rations have been reduced and acute malnutrition is high in many camps (with
a peak at 23 percent in the Southwest Gambella region). A number of refugees are engaged
in informal activities, but this can be difficult when camps are located in remote areas, far
away from production and urban centers, or when refugees lack the ability or skills to work.
The concentration of refugees in a few places is also heightening their impact on host
communities – both negative (e.g., on the environment) and positive (e.g., trade
opportunities). There are often significant inequalities in access to services between refugees
(who benefit from external assistance) and host communities, and there is significant scope
for efficiency gains by rationalizing parallel service delivery systems.

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4. Onward movements by refugees have raised significant concerns within the international
community. A number of refugees who are initially hosted by Ethiopia engage in further movements
towards Europe, the Middle East, or Southern Africa. International efforts to halt these onward
movements (especially to Europe) are mainly driven by domestic political considerations in OECD
countries, which are not directly relevant to development organizations. In fact, secondary
movements are often akin to a process of economic migration through which individuals move to an
environment where they believe they can have a better income. The economic literature has
demonstrated that such movements typically have an overall positive impact on both migrants and
host countries. However, in the case of refugees traveling from Ethiopia to Europe or the Middle East,
there have been repeated reports of brutality and exploitation during the journey, which are a
legitimate source of concern for both humanitarian and development organizations.

5. The refugee crisis has some significant gender elements. Overall, the conditions for women
and girls are often very difficult. Gender-based violence, survival sex, and early marriages are relatively
prevalent. Of particular concern to refugee women are the poor state of services for maternal health
and the lack of viable economic options for their daughters (even when they have access to education
in camps). Men and women may also have different preferences for the future (e.g., some Somali
women would prefer to stay while their husbands hope to return). Overall, this dimension can easily
be overlooked in an environment where most local stakeholders and decision-makers are male.

6. Overall, the situation is complex, with marked differences between various refugee
populations, in terms of their size, demographics, impacts, and prospects:

 About 350,000 South Sudanese refugees live along the Southwestern border (Gambella
Region). This is an ongoing and growing crisis, with a continued flow of arrivals (several
hundreds to thousands of people per week) and concerns that the numbers could grow by an
additional 125,000 people by the end of 2017. About 90 percent of refugees are women and
children (about 70 percent children), with men often staying in South Sudan while sheltering
their families in Ethiopia. This group is largely illiterate, with a background of subsistence agro-
pastoralism, and a relatively high incidence of trauma. They are largely dependent on the
provision of humanitarian assistance. About 19 percent of the South Sudanese refugees are
unaccompanied minors, who are typically taken care of by foster families (who are not
compensated for their generosity).

South Sudanese refugees outnumber the host population in the entire Gambella region (estimated at
about 300,000). This is exacerbating long-standing tensions which can easily be inflamed, in an
environment of endemic violence and raids from violent groups based in South Sudan (to steal cattle
and children). Additional social tensions result from the re-allocation of fertile land to industrial
(mechanized) farms and the corresponding displacement of entire communities. Overall, the host
population lives in poverty (from subsistence agriculture and pastoralism) with very limited access to
basic services.

Looking ahead, there is no clear prospect for a satisfactory socio-economic solution. Considering the
situation in South Sudan, return is unlikely in the short- to medium-term; inclusion within the host
community is difficult in view of the numbers and the fragile social fabric of the region; relocation to
another part of Ethiopia would likely cause a tragedy for a population that only speaks Nuer; and long-
term confinement in camps is likely to be detrimental to all.

 About 250,000 Somali refugees live along the Eastern border (Somali region). They fled as
entire households, and often clans. Most have arrived after the 2008 drought (as earlier waves
had largely repatriated), although some have been in the region for more than twenty-five

120
 years. About 200,000 of them live in 5 camps across the Dollo Ado area in one of the poorest
and most remote parts of Ethiopia. The remaining 50,000 live in camps located in the vicinity
of Jijiga (the region’s capital). There are marked differences in their background (e.g., urban,
agro-pastoralism), their geographic and clan origin, and their current situations (e.g.,
opportunities, informal economic activities). Overall, their industriousness is often hampered
by their isolation in a difficult environment with no access to land. Some of them embark in
onward movements. Access to services is also limited (e.g., in a very young population, 48
percent of school-age children are out of school).

Host communities also live in deep poverty, with less aid and often less access to services. Refugees
represent about 4 percent of the region’s population, but can be a majority in the vicinity of camps.
Anecdotal evidence suggests that some Ethiopian Somalis also come to settle near camps to take
advantage of the opportunities associated with aid and remittances. There is no significant tension
between refugees and their hosts who are linked by a common culture and clan system. The
Government is however taking a strong security stance in the region, with particular concerns about
the possible infiltration or recruitment of young refugees by extremist groups. The presence of
refugees has also typically not been factored in regional development plans.

Looking ahead, past experience suggests that some of these refugees may return to Somalia once the
political and economic situation in their region of origin or in large urban centers improves; some may
try to stay in Ethiopia although the medium-term economic viability of the areas where they currently
live is questionable; and some may opt for “split family” strategies with breadwinners moving to
locations where they have opportunities and the rest of the family staying close to externally-provided
services.

 About 150,000 Eritrean refugees live mainly along the Northern border (Afar and Tigray
Regions). They are mainly young, male, single, with a basic education, an often traumatic
background of violence, and a pervasive sense of hopelessness. Most of them are on their way
to further destinations: about 40 percent stay in camps less than 3 months and about 80
percent less than a year. A number of those who stay are living out of camps, including in
urban environments, either regularly or not. About 25 percent of refugees are unaccompanied
minors, including a relatively large share between the age of 9 and 15, for whom there are no
satisfactory care arrangements.

There is no significant tension with host communities due to the small number of refugees, strong
cultural ties, and the region’s relative prosperity. The Government has also adopted a relatively
welcoming approach, in the context of its difficult relationship with Eritrea. Since 2010, the
Government allows some Eritrean refugees to live out of camps (those who have the means to support
themselves and university students).

Looking ahead, prospects for return are limited in the short- to medium-term, and those refugees who
are not engaging in onward movements may look for a degree of socio-economic inclusion in Ethiopia.

7. Ethiopia is also host to other groups of displaced persons, including about 50,000 Sudanese
(along the border), a small but potentially growing group of Yemenis, and other nationalities. About
20,000 refugees live in urban centers, although with no right work in the formal sector. In addition,
about 450,000 Internally Displaced Persons (IDPs) live in Ethiopia, as a result of communal violence as
well as natural disasters. And about 86,000 Ethiopians are refugees abroad, mainly in Sudan.

8. Finally, Ethiopia is likely to continue to receive inflows of refugees in the period to come.
Over the last 25 years, Ethiopia has received successive waves of refugees from the East, the North

121
and the West. Looking ahead, most of Ethiopia’s neighbors are at risk of facing some kind of instability
or conflict over the next decade. The challenge is hence not only to deal with existing situations, but
also to develop an effective approach to manage such repeated inflows over the medium-term.

The Government’s approach

9. Ethiopia has demonstrated over several decades its generosity and commitment to
providing adequate protection to refugees. The country should be commended for the efforts made
over such a long period of time, in spite of limited external support and a difficult regional
environment. Ethiopia’s hosting of refugees is part of a broader regional policy, which aims to stabilize
a troubled Horn region, reduce the threat of violent extremism, and show leadership in Africa.

10. The Government has realized the limitations of a policy focused on encampment. Under the
assumption that refugees would stay in country for a limited amount of time before returning to their
home country, Ethiopia and its partners have long relied on a camp policy, whereby refugees are
assigned to camps with very limited socioeconomic rights. Under this system, the authorities provide
land for the camps with the expectation that external partners will provide for the needs of an
encamped population, and a dedicated agency (ARRA) manages a parallel system of service delivery
for refugees. Yet, many refugees have stayed and are staying for extended periods of time. In such
situations the camp approach becomes counter-productive for the refugees themselves who are
reduced to idleness and dependency, but also for Ethiopia and the world at large, as a disenfranchised
and frustrated new generation emerges.

11. The Government has embarked on an ambitious and possibly “game changing” reform
which aims to allow for the eventual socio-economic inclusion of refugees. The Prime Minister has
articulated an emerging vision, that refugees should be gradually allowed to live out of camps, work,
access mainstream education and health services, cultivate land, and even be provided with a formal
(legal) integration for those who have spent more than 20 years in Ethiopia. This represents a marked
shift in a decades-old approach. It could have significant benefits for both refugees and Ethiopia, even
though it is expected to be implemented gradually over a period of time (and some groups of highly
vulnerable refugees are likely to need continued humanitarian support over the medium-term).

12. During the September 21, 2016 Leaders’ Summit organized by then-US President Obama,
Prime Minister Hailemariam Desalegn committed to nine pledges to start operationalizing this
vision, subject to the availability of external resources to finance some of the most ambitious
components of this effort, especially the establishment of industrial parks. Detailed pledges include:
(i) expand Out of Camp policy to benefit 10 percent of the total refugee population; (ii) provide work
permits to refugees, to those with permanent IDs, and to graduate refugees (in areas permitted for
foreign workers); (iii) increase the enrollment of refugee children from about 148,000 to 213,000
students; (iv) make available 10,000 hectares of irrigable land; (v) allow for legal integration of
refugees who have lived for more than 20 years in Ethiopia; (vi) build industrial parks that could
employ up to 100,000 individuals with 30 percent of the jobs reserved for refugees (this pledge is part
of a “Jobs Compact”); (vii) strengthen, expand, and enhance basic and essential social services for
refugees (including health services); (viii) provide facilities for refugees to obtain bank accounts,
driving license, etc.; and (ix) provide birth certificates to children of refugees born in Ethiopia.

13. At the local level, authorities are aware of the opportunities and challenges. Officials
recognize the economic gains related to the presence of refugees; they are aware that negative
impacts are heightened by the camps policy (e.g., on the environment); they often tolerate a degree
of de facto economic inclusion; and in some cases they even provide (limited) agricultural land (e.g.,

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in Dolla Ado). Yet there are also concerns about the transition to a more inclusive policy in terms of
labor market competition, social cohesion and security.

Ongoing assistance programs

14. A number of humanitarian actors have been engaged for several decades in supporting
Ethiopia on refugee issues (e.g., ECHO, WFP, UNHCR, and key bilateral agencies). In the context of a
protracted situation, and with competing crises in other parts of the world, many such partners are
expecting resources to shrink in the coming period and to be focused on the South Sudan emergency.
Support has also been provided for a relatively large resettlement program (involving about 20,000
people a year), which has provided hope (and raised expectations) for many refugees, but is now at
risk following recent policy shifts in the US.

15. Development actors have engaged more recently, with a focus on reducing onward
movements. The European Union and a number of bilateral European agencies are implementing a
series of interventions explicitly aimed at reducing such movements by enhancing refugees’ living
conditions in Ethiopia. Key actors include DFID, which is spearheading an effort to create jobs through
industrial parks (“Jobs Compact”), the European Investment Bank (EIB) which has pledged to support
the Jobs Compact, as well as the European Commission and several bilaterals who are engaged in
areas hosting Eritrean and Somali refugees. Overall, beside the DFID program (GBP 125 million), the
main source of funds is a Euro 30 million EU-administered trust fund. Other bilateral contributions are
significantly smaller. Refugee-focused programs are only part of a broader international effort to
support Ethiopia, which includes many interventions, including some in refugee-hosting areas.

Selected lessons from WBG experience

16. Within the broader context of the Country Partnership Framework (CPF), the WBG has
engaged in a number of activities that can provide lessons for a scaled-up engagement on forced
displacement. These include: a US$100-million Development Response to Displacement Impact
Project (DRDIP) aimed at improving access to basic social services, expanding economic opportunities,
and enhancing environmental management for communities hosting refugees through community-
driven development; a series of interventions in emerging regions targeted to strengthen
decentralized government administrative functions; and a series of projects in key sectors (e.g.,
education, health, social protection, agriculture, urban development).

17. Key lessons include: (i) the Government often proceeds through a gradual approach to
reforms, with a strong emphasis on evidence-based policy-making and disciplined implementation. (ii)
institutional capacity, especially in emerging regions is low, including to implement projects; (iii) due
attention needs to be paid to the relationship between the federal government and the regions; (iv)
community-driven approaches have demonstrated their potential in providing support at the local
level (for both economic opportunities and service delivery), but the demand side of accountability
can be further improved.

B. World Bank Group engagement

18. The WBG engagement on forced displacement in Ethiopia could potentially be supported by
a request to the IDA18 sub-window for refugees and host communities. Ethiopia is likely to be eligible
given its overall supportive policy environment. Individual country allocations are yet to be set, but as
a large host country, Ethiopia is expected to benefit from substantial amounts of resources under the
sub-window. A full request for eligibility to access such resources is expected to be presented for
Board discussion by Fall 2017.

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19. The WBG engagement on forced displacement is part of a broader international effort, which
includes both humanitarian and development components. The WBG will need to work in close
partnership with other actors, including UNHCR, for its interventions to be effective. The
Comprehensive Refugee Response Framework (CRRF), for which Ethiopia is a pilot, could provide the
overall framework for such coordination and synergies.

WBG corporate approach and comparative advantage

20. The overall WBG’s approach is focused on the medium-term socioeconomic dimensions of
forced displacement. This approach was endorsed by the Development Committee during the 2016
Spring Meetings and is central to the WBG’s development mandate, its efforts to achieve the
Sustainable Development Goals (SDGs) and its own goal of eradicating extreme poverty by 2030. It is
complementary to, but distinct from, the humanitarian approach, which is centered around a rights-
based protection agenda and short-term crisis responses. The WBG aims to help the forcibly displaced
offset the specific vulnerabilities they have acquired through their displacement experience, so as to
be able to seize economic and social opportunities that may be available in the environment where
they live. It also aims to support host communities manage their poverty reduction efforts in an
environment that has been transformed by an inflow of forcibly displaced persons.

21. Additional guidance was provided during the negotiations for the IDA18 replenishment. The
sub-window for refugees and host communities is a highly visible part of IDA18. The goals of the sub-
window are: (i) to mitigate the shocks caused by an influx of refugees and to create social and
economic opportunities for refugees and host communities; (ii) to facilitate sustainable solutions to
refugee situations; and (iii) to strengthen preparedness for increased or potential new refugee flows.
It aims to support a programmatic approach, that goes beyond projects and includes a strong element
of policy dialogue.

22. In supporting the GoE’s response to the protracted situation, the WBG’s comparative
advantages are three-fold: (i) its capability to offer integrated solutions that bring together policy
dialogue, technical assistance, and investment finance; (ii) its experience in designing and
implementing development responses to a broad range of problems, with a focus on government
ownership and medium-term sustainability; and (iii) its convening power to facilitate dialogue with
economic institutions (within the context of the implementation of its broader program in Ethiopia)
and its ability to encourage ministries and other entities which have not been engaged in this area to
do so.

Overall development objective

23. The proposed overall objective of the program is to support the Government’s policy shift
from a focus on encampment to a sustainable management of refugee situations within a medium-
term perspective, which (1) gradually provides out of camp opportunities for the socio-economic
integration of refugees; (2) improves economic opportunities and service delivery for host
communities; (3) builds the human capital of the next generation; and (4) transitions away from
humanitarian aid where relevant. This is in line with the Government’s overarching approach, as
restated by Prime Minister Hailemariam Desalegn during the Sept 21, 2016 Leaders’ Summit.

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24. This objective can be further articulated along each of the four proposed “business lines”:

 Providing out of camps opportunities will likely require a combination of policy reforms and
investments, to allow for: freedom of movement (and residence), work permits (and
associated rights (such as to open a bank account, own land, enter into a contract, etc.), skills
development, and the creation of job opportunities (including, but not limited to, in and
around industrial parks).
 Supporting host communities will aim to work with local government authorities to boost
living standards in host communities (economic opportunities and access to quality services)
and reinforce the potential for inclusion of refugees, including through a degree of
empowerment;
 Building the human capital of the next generation will include a focus on both education (at
all relevant levels, including vocational) and health / nutrition, with an understanding that it
needs to treat refugees and host communities equally and to address the specific challenges
faced by refugees (e.g., unaccompanied minors);
 Transitioning away from humanitarian aid: managing the expected reduction of
humanitarian aid in a way that minimizes adverse effects and recognizes the persistence of
humanitarian needs (new inflows, highly vulnerable groups) as critically important. The work
may focus on issues such as the gradual transition away from food aid, the eventual merger
of ARRA-managed service delivery with the overall education and health systems.

25. This objective is expected to play out differently in various parts of the country:

 For South Sudanese, there may be limited prospects for economic integration in the short- to
medium-term, but a major effort is needed to support host communities and to build human
capital;
 For Somalis, the situation varies across sub-groups. Some have the potential to access out of
camp opportunities, local integration, and greater economic inclusion, while others may
require help to build their human capital. Significant support is likely to be needed to boost
the potential of host communities to accommodate them in a sustainable manner;
 For Eritreans (for those who do not immediately engage in onward movements), major
progress could be achieved through the implementation of an effective “out of camp +”
approach that combines freedom of movement (and residence), work permits, skills
development, and the creation of job opportunities.

26. This objective calls for several comments. First, the objective is to support a reform that is
potentially “game-changing”, i.e. the move away from long-term dependency in camps towards the
inclusion of refugees in a growing economy. This could help move towards an acceptable solution for
a number of refugees over time. Second, in view of the situation in neighboring countries, it recognizes
that refugee crises constitute a structural risk for Ethiopia. It therefore aims not only to help respond
to the current situation, but to also develop an adequate policy and institutional framework to manage
this structural risk over the medium-term. Third, it places the focus not only on projects, but on the
implementation of a policy shift. This is because the policy reforms that the Government is
contemplating are likely to have a far broader impact than individual projects. In this context, the main
rationale for projects is to underpin and support the implementation of the Government’s reforms.
And fourth, the objective is not to reduce onward movement, but to reduce the poverty and
vulnerability of refugees and host communities.

27. It should be underlined that the proposed focus on the “next generation” is critical for the
medium-term stability of the region. The 2011 World Development Report (WDR) on Conflict,
Security, and Development suggests that there is a high risk that a country like South Sudan remains

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entrapped in cycles of violence for a long time. Today, a large part of its youth is in exile, mainly in
Ethiopia and Uganda. Investing in this youth, to build a cadre of people who can lead in the public and
private sectors at local and national level, is an investment in the medium-term stability of the region.
It may help a generation emerge that gradually breaks with the violent cycles of the past. While there
is no guarantee that such an approach will be effective, there is a quasi-certainty that the return of a
frustrated and disenfranchised youth would push the country back into conflict.

Possible program of activities

28. A potential program for Ethiopia will be further elaborated in the “Consultation Note” that
will be prepared to explore Ethiopia’s eligibility under the sub-window. It is likely to rest on a
combination of policy dialogue, projects and knowledge products, which complement each other. It
will aim to be selective and complement ongoing or planned WBG policy dialogues and interventions.

29. The policy dialogue is likely to concentrate on supporting the effective implementation of
the pledges already made by the authorities especially on out of camp, work permits, and access to
education. The dialogue is expected to evolve over time from an initial focus on the pledges, to their
adjustment and / or expansion (e.g., to move towards a gradual integration of basic service delivery)
based on early results and new developments.

30. Priority projects will aim to support progress towards the overall objective. This may include
support to the development of industrial parks which could provide economic opportunities for
refugees and host communities; support to host communities through area-based and community-
driven development activities; support to the implementation of the Government’s pledges for
example in social sectors; and a particular effort to ensure refugee children can access adequate
education services. This may include new projects (including possibly programs for results), additional
financing for existing projects, or adjustments to the existing portfolio.

31. Possible knowledge products will aim to strengthen the effectiveness of the policy dialogue
and the design of projects. This could include a poverty and vulnerability assessment for refugees and
host communities, to establish the baseline against which further activities can be defined, as well as
to better understand the specific issues faced by refugees and host communities. It could also include
specific work to facilitate an orderly transition from humanitarian assistance (e.g., on transition to
country systems, institutional arrangements, emergency planning with a medium-term horizon, or
economic sustainability of camp areas) through a series of notes to be prepared in partnership with
key humanitarian agencies and bilaterals.

Coordination and implementation

32. To advance the policy dialogue, close coordination with UNHCR and key bilaterals will be
essential. Since all will engage with the authorities (and with different parts of the Government),
ensuring consistency across messages is key. Dedicated efforts are needed to ensure there continues
to be a close working relationship with UNHCR and key bilaterals (e.g., DFID) on this issue. The WBG
could also support efforts to rapidly merge relevant coordination groups under the Government’s
leadership, ideally within the broader Comprehensive Refugee Response Framework (CRRF). The CRRF
was established by a UN declaration on September 20, 2016 to facilitate better synergies between
humanitarian and development actors with the aim of easing the pressure on host countries and
enhancing refugee self-reliance. It is spearheaded by a small UNHCR-led secretariat to which the WBG
contributes a staff.

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C. Risks and Mitigation

33. The overall risk for the successful implementation of a WBG-supported forced displacement
program in Ethiopia is high. This is a new area of engagement for the WBG, in which there is limited
knowledge and significant sensitivities. Yet, the Government’s commitment to adopt a set of
ambitious reforms provides an environment where WBG support could be transformational and is
worth the risks. Key risks include: overall country risks; risks of policy reversal or reduced focus; risks
that key issues are inadequately addressed; implementation risks; and reputational risks.

34. An effective risk mitigation system needs to be in place as part of the management of the
WBG engagement. Ethiopia is expected to be among the first countries to benefit from sizable WBG
resources for forced displacement related operations. As such the program is likely to include some
high-risk elements, an approach which Board members have indicated they may be willing to support.
But the program should also be construed as a potential source of learning. Risk management systems
should allow for identifying and responding to potential challenges in real time, with an adequate
degree of flexibility.

35. Overall country risks. These risks are identified in the upcoming CPF and include political,
macroeconomic and social risks. The forced displacement program will have to be managed as part of
the broader WBG engagement in the country, including in terms of mitigating such risks.

36. Policy reversal or loss of focus. Political events in Ethiopia or in the region may result in a loss
of momentum for the policy shift on refugees, for example, in case of further social unrest and political
tensions, security incidents associated with refugees, new inflows that would overwhelm
accommodation capacities, etc. The current focus on the expected drought may also complicate the
desired shift of mindset from emergency response to a longer-term approach. Finally, some
institutions may resist the pledged reforms or the shift from humanitarian assistance to development
approaches, for example if ARRA felt this would reduce its influence. The WBG will need to engage in
the design and implementation of the reforms to support the Government’s efforts and help
accelerate their implementation, including by helping manage vested interests.

37. Inadequate treatment of key issues. Issues such as the impact of trauma or the dependency
that has been created by years of aid could have an impact on the refugees’ willingness and ability to
seize economic opportunities. Yet, psychosocial factors and mental health are areas where the WBG
has limited experience. The current design assumes that for most refugees these will not constitute a
major obstacle once job and education opportunities are available – yet this may not be the case for
some groups. The WBG should make a determined effort to learn from (and during) implementation,
and be open to adjustments in project design / restructuring should such risks materialize.

38. Implementation challenges. Implementation is likely to be difficult in emerging regions where

administrative capacity is limited. The design of the proposed program and in particular, the choice of
areas of engagement and financing instruments, is based on an acknowledgment of this reality. It will
need to be complemented by efforts to ensure these risks are adequately reflected in the design of
each operation.

39. Reputational considerations. There may be misguided expectations on the WBG-supported

program, which is not about reducing the number of refugees or preventing their secondary
movements, but about managing the medium-term socioeconomic dimension of the crisis.
Humanitarian aid is expected to decrease which could have dramatic consequences in some areas and
the WBG’s involvement may be seen as an enabling factor for such developments. The WBG program
could also be criticized by political stakeholders should the popular attitude towards refugees become

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hostile. Finally, working conditions in industrial parks may be controversial and the WBG may be
blamed for it (even if safeguard policies are adequately implemented). To mitigate these risks, the
WBG program will need to be accompanied by a proactive communications effort.

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ANNEX 14: MAP OF ETHIOPIA

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