Highlights

The World Bank Group program adapted to the constrained policy environment during the early evaluation period to support the development of the private sector in areas open for dialogue and engagement—advisory services and analytics and projects focusing on small and medium enterprises and industrial parks. During the brief period of policy reform, it moved quickly with a development policy operation to support broader private sector development policies.

At the start of the evaluation period, the Bank Group and the Ethiopian government agreed on the country’s economic development goals but had different views on how to achieve them: the government prioritized a state-led approach, whereas the Bank Group highlighted growing macroeconomic imbalances that suggested a greater role for the private sector. While the country initially experienced high economic growth rates, macroeconomic imbalances emerged and created challenges for fiscal sustainability and continued growth and poverty reduction.

The Bank Group quickly developed the highly relevant Growth and Competitiveness development policy operation series to support a reform opening in 2018. The series sought to support critical policies to improve macroeconomic stability and enable private sector growth. The development policy operation had notable successes, but slower-than-anticipated reform momentum and policy reversals during the ensuing conflict and crisis period undermined the success of some reforms in the short term.

The World Bank’s and International Finance Corporation’s effectiveness in improving the trade and business environment during the early period was limited in the absence of broader macroeconomic policy reforms. There was limited scope to scale up access to finance as key constraints to private sector participation in the financial sector remained unresolved.

At the start of the evaluation period, the Bank Group supported the government’s efforts to build industrial parks to promote export-oriented manufacturing as a solution for nurturing the private sector when there was limited appetite for broader reforms. These parks yielded some positive results but did not have much of an impact on Ethiopia’s employment levels or export performance.

The World Bank’s efforts to improve agricultural productivity aligned with government priorities and achieved notable successes, despite constraints such as the prevalence of small-scale farms and the absence of broader economic reform that would reduce the government’s role in the sector. However, production growth has not kept pace with rising demand, and the macroeconomic imbalances (particularly the overvalued exchange rate) undermined agricultural export potential.

This chapter evaluates the Bank Group’s efforts to increase the private sector’s participation in Ethiopia’s economy. It first looks at the Bank Group’s efforts to nurture private sector participation in Ethiopia’s economy by improving enabling conditions such as the macroeconomic environment, business regulations, and access to financial services. The chapter describes how the space for the World Bank’s proposed reforms to expand the country’s private sector grew after a new government signaled more openness to private sector participation in the economy in 2018 and the World Bank’s engagement on economic issues evolved. The final two sections of this chapter examine the Bank Group’s efforts to boost economic growth in a private sector–constrained environment through the productive sectors of manufacturing and agriculture.

Enabling the Private Sector

The private sector’s involvement in Ethiopia’s economy is limited. In 2012, private companies contributed just 2.7 percent to GDP and employed just 5.8 percent of the workforce (World Bank 2012a). At the time, Ethiopia ranked 111th out of 183 economies in the Doing Business rankings (World Bank 2012b) and 121st out of 141 countries in the World Economic Forum’s Global Competitiveness Index (WEF 2012). Both ranking systems identified limited access to finance, difficulty in starting a business, and weak trade logistics as areas holding back private sector growth in Ethiopia (World Bank Group 2015). The 2016 Systematic Country Diagnostic identified these same issues and unreliable energy access as the binding constraints for the private sector (World Bank 2016b).

This section evaluates the Bank Group’s efforts to enable Ethiopia’s private sector development. It first examines initiatives to strengthen macroeconomic conditions conducive to private investment. Next, it looks at efforts to enhance the business environment—including trade, infrastructure, and logistics measures—that would improve a firm’s ability to operate in the country. Finally, it explores the Bank Group’s efforts to expand access to finance and enhance financial inclusion. Each subsection details the Bank Group’s strategies and operations and their relative effectiveness in these areas.

The World Bank program adapted to the constrained policy environment to support the development of the private sector in areas where there was space for engagement. In the period of increasing macroeconomic imbalances, when there was limited room to promote policy reforms, the World Bank invested in the areas where it was able to operate within the constraints of the government policy: support for micro, small, and medium enterprises; industrial parks; and agriculture. Some projects, such as the ones focusing on trade logistics, were approved before the period of reforms but benefited from reforms when they materialized. During the period of increasing macroeconomic imbalances, the World Bank supported macroeconomic dialogue through ASA, avoiding public confrontation on areas of policy disagreement. The World Bank sought to influence Ethiopia’s nonconcessional borrowing during this period by agreeing on borrowing ceilings with the government, but these ceilings were repeatedly violated through FY18, gradually increasing to a high risk of debt distress, despite penalties imposed by the World Bank (box 3.1).

The Bank Group adapted quickly during the reform period in 2018, which was short-lived and soon interrupted by a longer period of conflict and economic crisis. When a reform opening occurred in 2018, the Bank Group was ready to quickly develop a DPO series to support the reforms. When the period of reform was interrupted by the conflict and economic crisis, the World Bank lowered its public profile by discontinuing the publication of its macroeconomic updates. The program then focused on additional financing for microfinance and the Agricultural Growth Program (AGP), which helped provide additional resources that may have helped the country avert a worse economic crisis and higher poverty levels (figure 3.1). The World Bank’s continued relationship with the government allowed it to support new reforms after the evaluation period with a new DPO series, and an IMF program in July 2024 supported exchange rate liberalization. IFC adapted to the changing environment by focusing on areas in which it was able to support private sector development, such as agriculture and short-term finance, while engaging in a range of relevant advisory activities to prepare the ground for potential reforms. However, some reforms, such as adjustments of the exchange rate and steps toward liberalizing the financial sector, materialized only after the evaluation period or not at all, limiting IFC’s ability to engage in sectors where it had a larger potential role.

Figure 3.1. Major Events in Ethiopia and Key International Development Association Interventions to Promote Private Sector by Fiscal Year

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Figure 3.1. Major Events in Ethiopia and Key International Development Association Interventions to Promote Private Sector by Fiscal Year

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Source: Independent Evaluation Group.

Note: AF = additional financing; CPF = Country Partnership Framework; CPS = Country Partnership Strategy; DPF = development policy financing; DPO = development policy operation; (R) = regional projects with significant component in Ethiopia; SME = small and medium enterprise.

Ethiopia’s reengagement in reform efforts since the end of the evaluation period helped it take steps toward addressing some of the key constraints that limited the effectiveness of Bank Group engagement. Engagement with IMF and the World Bank has helped the country make progress toward facilitating exchange rate liberalization. Steps to reduce constraints to financial sector development are under preparation, with the opportunity to increase the effectiveness of Bank Group support to enabling the private sector.

Improving Macroeconomic Conditions

Major macroeconomic distortions undermined Ethiopia’s private sector development and export performance throughout the evaluation period. These distortions included an overvalued exchange rate and financial repression measures that kept interest rates low and directed the bulk of credit and foreign exchange to SOEs for financing public infrastructure. They also included central bank financing of the fiscal deficit and trade and regulatory restrictions. These distortions, in addition to external shocks such as drought and conflict, contributed to weak export performance. Exports of goods and services decreased from 12.5 percent of GDP in 2013 to 6.6 percent in 2023, significantly lower than the African average of 25.8 percent. Acute macroeconomic distortions worsened during the evaluation period and included a shortage of foreign currency and high parallel market premiums, high inflation, and burgeoning external debt. As a result, by 2019, Ethiopia had reached a high risk of external debt distress.1 In December 2023, it defaulted on a Eurobond payment, putting the country in debt distress.

Ethiopia’s move toward a greater private sector role in the economy during the reform period of 2018–20 was disrupted by COVID-19 and a period of conflict and economic crisis. The government became more open to economic reforms based on the HGERA in 2018. However, the COVID-19 pandemic affected production and supply chains, slowing private investment at that time. In addition, the Tigray conflict and ongoing conflict in other regions increased the risks and potential costs for firms operating in Ethiopia. Moreover, the Tigray conflict prompted the United States to expel Ethiopia from the African Growth and Opportunity Act in November 2021, which removed duty- and quota-free access to the US market for Ethiopian manufacturing exports. The Tigray conflict also resulted in decreased development financing to Ethiopia, exacerbating the foreign exchange shortage and the ensuing debt crisis. Ethiopia’s high climate vulnerability further limits the private sector’s appetite for investment, particularly in agriculture.

Both Bank Group strategies sought to support macroeconomic stability and promote private sector growth, but an opening for these reforms emerged only in 2018. Both the FY13–16 CPS and the FY18–22 CPF supported debt management, revenue mobilization, and a stable exchange rate as important components for creating macroeconomic conditions that facilitate private sector growth. During the CPS, the Bank Group supported these policies by providing the government with technical assistance, nonlending ASA (see chapter 2), and capacity building. The CPS aspired to operationalize these policy reforms through a DPO; however, this did not materialize until there was an opening for wider government dialogues on these issues. At the beginning of the CPF period, the HGERA created that opening. The HGERA announced the government’s commitment to rebalancing the public and private sectors’ role in the economy by shifting away from the country’s state-led development model. It also prioritized stabilizing the macroeconomic environment and unlocking growth potential.

The Bank Group quickly developed a highly relevant, large DPO to support the government’s 2018 reform package. The World Bank’s $1.95 billion programmatic Ethiopia Growth and Competitiveness DPO series supported broad structural reforms and marked the end of a 13-year hiatus in the World Bank’s policy support operations.2 The Bank Group and IFC teams leveraged their respective knowledge base in developing the DPO. The DPO series sought to reform many aspects of the Ethiopian economy in areas that had previously been off-limits for reform. These reforms included measures to reduce the regulatory burden on businesses; increase exchange rate flexibility; reduce financial repression; privatize SOEs; and increase foreign investment and competition in the energy, telecommunications, and logistics sectors. However, the DPO series was high risk because of its ambitious scope and the continued macroeconomic distortions. Critical exchange rate reforms were backloaded to the third operation in the series because of the need to first improve and stabilize the fiscal situation before a fundamental exchange rate adjustment would ensue. The reform was then dropped by the second operation when an IMF program started to address this reform.

The DPO achieved notable successes and laid the groundwork for further reforms; however, several risks materialized that undermined the DPO series’s success. Box 3.2 outlines one of the DPO’s most notable successes: introducing private competition into the telecommunications sector. The DPO also laid the groundwork for increasing foreign participation in the economy, reducing the regulatory burden on businesses, increasing the role of public-private partnerships, and privatizing SOEs. However, some progress on public-private partnerships, foreign investment, and energy sector efficiency was dependent on foreign exchange reforms, for which there was only progress in the context of the new World Bank DPO series and IMF program in July 2024. Several risks materialized, particularly the COVID-19 pandemic, the outbreak of the Tigray conflict, and an economic crisis, which undermined reform momentum and led the World Bank to cancel the third DPO. Policy reversals that reimposed financial repression measures in a worsening macroeconomic environment further impeded progress.

The Bank Group’s engagement since the reform period was unable to help decrease SOE dominance in the economy but contributed to improving the oversight and governance of SOEs. SOEs crowd out the private sector, and their soft budget constraint and weak oversight increase fiscal risks. Since 2018, the Bank Group has delivered several ASA projects, a DPO series, and the Sustainable Development Finance Policy to accelerate SOE reforms, with much of this work supporting better SOE oversight and financial management to help reduce fiscal risks.3 The DPO promoted relevant reforms, including guidelines and a legal framework for privatizing SOEs; however, to date, no SOEs have been privatized. Overall, the Bank Group–supported SOE reforms made limited progress in reducing SOE dominance in the economy. For example, the DPO reforms enabled foreign investment in the logistics sector but were unable to liberalize the shipping sector, where one SOE continues to dominate. They also supported investment in the telecommunications sector but were unsuccessful in privatizing the state-owned company.

Improving the Business Environment

Throughout the CPE period, both Bank Group strategies aimed to improve Ethiopia’s trade and business environment. The FY13–16 CPS focused on enhancing competitiveness in manufacturing and services by improving business registration and licensing processes, supporting industrial zones, and simplifying trade logistics. However, the CPS lacked specific targets beyond job creation in Bank Group projects and a well-defined theory of change. The FY18–22 CPF continued these priorities and added trade infrastructure support and quality assurance efforts for enterprises.

Early in the evaluation period, the Bank Group delivered relevant advisory support to improve the business environment that was implemented well but had limited effectiveness in a less conducive reform environment. The World Bank provided ASA support early in the evaluation period, including study tours to help government policy makers learn from the experiences of peer countries, but it produced few formal analytic products. In 2013, IFC launched two advisory projects to remove constraints to business regulation and taxation as identified in the analytic work. The program helped reduce business registration costs and simplify trade processes. IFC’s Business Taxation Project achieved its intended outputs and simplified tax procedures but did not meet its higher-level target of expanding the tax base. IFC also helped the Ethiopian Investment Commission introduce the Systematic Investor Response Mechanism to address grievances and de-risk investments, but the commission’s effectiveness has been limited.

After the start of the reform period, the World Bank’s Growth and Competitiveness DPO series, combined with IFC’s advisory support, helped modestly improve Ethiopia’s business climate. The DPO-supported policy reforms reduced licensing requirements, such as certificates of competence, making it easier to start a business. It also contributed to the government approving a draft Investment Proclamation, which enabled foreign participation in more economic sectors and led to 104 investment permits in previously closed sectors. However, DPO triggers meant to reduce SOE dominance and improve competition were dropped. Toward the end of the evaluation period, IFC carried out relevant advisory work to improve the country’s business environment and investment policy, meeting its output targets, but it is too early to assess these efforts’ ultimate effectiveness.

The Bank Group helped improve Ethiopia’s conditions for trade over the evaluation period, exceeding targets despite experiencing delays due to the Tigray conflict. IFC supported improved export processes with the 2013 Ethiopia Trade Logistics Project and 2019 Ethiopia Trade advisory project. Meanwhile, the Bank Group supported private sector competitiveness through the Trade Logistics Project and the National Quality Infrastructure Development Project, both approved in 2017. The Trade Logistics Project improved trade infrastructure and built related capacity, including transforming the Modjo dry port into a multimodal port, reducing trade logistics costs.4 A prior action in the second Growth and Competitiveness DPO supported reducing restrictions on foreign participation in the project, creating a necessary condition to allow foreign direct investment that exceeded project targets. However, conflict-related disruptions delayed some of the project’s infrastructure components and capacity-building outputs. The National Quality Infrastructure Development Project enhanced the private sector’s trade competitiveness by helping Ethiopian firms meet the quality standards required by global markets. The project also exceeded its targets for delivering quality assurance and calibration services and achieved most of its other goals.

Increasing Access to Financial Services

Financial repression measures as part of the government’s economic model before the period of opening to reforms contributed to the financial sector having low levels of access. At the start of the evaluation period, Ethiopia’s banking sector was dominated by the public sector and the state-owned Commercial Bank of Ethiopia, which accounted for 70 percent of assets in the banking sector in 2013 but served only about 112,000 borrowers (IMF 2013). The government also exerted influence on the 31 microfinance institutions in Ethiopia, which served only 2.9 million clients, less than 4 percent of the country’s population. Ethiopia’s financial sector remained underdeveloped despite the country’s opening to broader economic reforms, with credit to the private sector lagging behind the country’s peers. Bank credit to the private sector improved modestly, from 10 percent at the start of the evaluation period to 16 percent in 2022 (figure 3.2; World Bank, forthcoming-b).

Bank Group strategies were relevant for creating the conditions for improved access to financial services, with the World Bank and IFC engagements complementing each other. The 2012 CPS acknowledged constraints in the financial sector but provided limited strategies for addressing them in the early part of the evaluation period (World Bank 2012a). The 2017 CPF gave more attention to access to credit and financial infrastructure, following recommendations from a 2014 study on Ethiopia’s SME finance (World Bank 2017a). IFC’s strategy focused on trade and supply chain financing and advisory services, with the potential to expand to working capital solutions, lending, and equity investments if broader sector reforms occurred. The Bank Group reacted to the increased openness to reform with the 2019 report Ethiopia Financial Sector Development: The Path to an Efficient Stable and Inclusive Financial Sector, which proposed additional reforms and advisory activities for the Bank Group to focus on, such as improving financial stability, financial inclusion, and long-term finance for companies (World Bank 2019a).

Figure 3.2. Bank Credit to the Private Sector and Banking System Credit by Sector

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Figure 3.2. Bank Credit to the Private Sector and Banking System Credit by Sector

Sources: Independent Evaluation Group; Haver Analytics; World Development Indicators.

Note: LAMC = Liability and Asset Management Company; NBE = National Bank of Ethiopia; SOE = state-owned enterprise.

The Bank Group adapted to the challenging context by supporting improvements to Ethiopia’s financial regulation and infrastructure before there was a reform opening, but the effectiveness of these improvements was limited by financial repression. Before the reform period, World Bank advisory work helped establish check standards, a microinsurance framework, and anti–money laundering compliance. For its part, IFC helped develop leasing, financial infrastructure, agricultural and energy finance, and credit reporting. With an opening in policy dialogue under the HGERA during the reform period in 2020, a DPO prior action abolished the “27 percent rule,” which required private commercial banks to allocate 27 percent of their lending to purchase central bank bills and stalled financial sector development. However, during the conflict and economic crisis period, the government effectively reversed this reform in November 2022 by mandating that commercial banks allocate 20 percent of new loan disbursements to treasury bills at 9 percent interest. Similarly, in mid-2023, the government capped nominal bank credit growth at 14 percent, making credit flows negative when accounting for inflation. In all, these reversals meant that the Bank Group could not achieve many of its goals in improving the environment for private investment. Reform efforts resumed from the end of the evaluation period with renewed engagement from IMF and the World Bank, creating the conditions for the Bank Group support for financial regulation and infrastructure to bear fruit.

The Bank Group adapted to the constraints of a sector that limited the possibility of introducing private solutions. In 2012, the Bank Group launched the Ethiopia Women Entrepreneurship Development Project with cofinancing from development partners. The project channeled funding through the state-owned Development Bank of Ethiopia to microfinance institutions that provided loans to female microentrepreneurs. It provided loans and nonfinancial services, including technical assistance for entrepreneurial skills development.5 In 2016, the Bank Group’s SME Finance Project extended the Bank Group’s microcredit support to entrepreneurs. In addition to offering microloans, the project introduced leasing arrangements, with IFC’s support, to create leasing directives and supervisory frameworks. It also helped establish a collateral registry based on the recommendations from a 2014 SME finance study.

The World Bank’s micro, small, and medium enterprise interventions were operationally successful, but the state’s dominance in the banking sector limited their scale. By the end of 2021, the Ethiopia Women Entrepreneurship Development Project had provided more than 19,000 beneficiaries with financial services and trained more than 25,000 beneficiaries. A project impact study found that project participation contributed to the growth of businesses, employment, and business survival rates (Alibhai et al. 2020). The SME Finance Project’s leasing and credit line components reached 6,200 SMEs, exceeding its target of 4,200, and its business development services supported more than 2,500 micro and small enterprises, surpassing its target of 1,500 (IMF 2024; World Bank 2024i). The project’s collateral registry recorded more than 91,000 instances of beneficiaries using assets as collateral for loans. The DPO exceeded its target for increasing the percentage of total credit that is private sector credit. By most measures, these efforts are an operational success. However, the Commercial Bank of Ethiopia’s continued dominance of the banking sector inherently limits the potential scale of Bank Group support for financial inclusion. In other countries, successes in expanding access to finance through private institutions have created a demonstration effect, in line with the Bank Group’s cascade approach, which motivated additional private financial institutions to expand their services. In Ethiopia, limited competition from private financial institutions constrains this possibility.

Supporting Productive Sectors

This section evaluates the Bank Group support for productive sectors in Ethiopia—namely, light manufacturing and agriculture. Light manufacturing and agriculture represented shared priorities between the government and the Bank Group to support areas with the potential to promote livelihoods, economic growth, and exports. Light manufacturing, especially the development of industrial parks, where the private sector is allowed to flourish within limited enclaves, represented an option for the World Bank to strengthen the private sector when wider economic reforms were unattainable. Agriculture, given its wide reach in Ethiopia, offered the Bank Group the greatest potential for improving rural livelihoods and boosting exports relative to other areas. This section also details the Bank Group’s strategies and operations and their relative effectiveness in these productive sectors.

Supporting Light Manufacturing

The Bank Group supported the development of industrial parks during the earlier period of the CPE as an option for strengthening the domestic private sector in the absence of deeper reform appetite. The 2012 World Bank report, Light Manufacturing in Africa: Targeted Policies to Enhance Private Investment and Create Jobs, presented light manufacturing–based development in industrial parks as an opportunity to promote the private sector in African countries that lack the structural transformation that is usually required (Dinh et al. 2012). In Ethiopia, the World Bank aimed to take advantage of this opportunity with the 2014 Competitiveness and Job Creation Project at a time when willingness to reform was low. The project supported the creation of two industrial parks, Bole Lemi II and Kilinto, which would provide firms with infrastructure, trade logistics, modern skills, and ways to reduce climate risks. The government wanted to attract foreign direct investment to boost labor-intensive exports from these parks, benefiting from Ethiopia’s duty- and quota-free access to the US and European markets.

In 2018, the World Bank launched the Ethiopia Economic Opportunities Program, expanding the industrialization agenda to create jobs for refugees. At the time, Ethiopia hosted about a million registered refugees and asylum seekers. The Ethiopian government committed to the Jobs Compact with its development partners to create economic opportunities for refugees, including in industrial parks. The Ethiopia Economic Opportunities Program is ongoing, with between 53 percent and 80 percent of its job and economic opportunity goals met, though it has not made progress on issuing business licenses to refugees.

The industrial parks saw some success but never reached their full potential. Against the cautions of some analytic products, such as 4th Ethiopia Economic Update: Overcoming Constraints in the Manufacturing Sector (World Bank 2015b), and concerns from practitioners,6 the government decided to roll out a relatively large number of industrial parks in quick succession, contrary to the best practices identified in other regions. This decision led to implementation issues, and the Competitiveness and Job Creation Project faced delays and cost overruns. The loss of duty-free access to US markets prevented the project from attracting businesses that relied heavily on human labor to produce export goods,7 leading the government to shift Kilinto’s focus to pharmaceutical production to replace imports. Moreover, the industrial parks achieved only 19 percent occupancy. That said, the parks still exceeded their sales and investment targets and led to economic opportunities for micro and small enterprises located near the parks in transport, catering, small trade, and other services.

The Bank Group–supported industrial parks did not have a major impact on creating jobs or improving Ethiopia’s export performance. During the evaluation period, Ethiopia created 18 industrial parks—13 public and 5 private. The firms domiciled in these parks provided 90,000 jobs, absorbing less than 1 percent of new entrants to the country’s labor force during that time. In addition, Ethiopia’s overall export growth was 2.1 percent; manufactured exports grew by 6.9 percent; and textiles—a sector targeted by industrial parks—grew by 9.8 percent. However, in FY20, industrial park exports accounted for just 5.1 percent of total goods exports and 40 percent of textile exports (World Bank 2022b). These small increases were not enough to slow Ethiopia’s declining export performance compared with its peer countries (figure 3.3).

Figure 3.3. Exports of Goods and Services

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Figure 3.3. Exports of Goods and Services

Source: World Bank Open Data.

Note: IDA = International Development Association.

Increasing Agricultural Productivity

Ethiopia relies heavily on agriculture for export revenues. At the start of the evaluation period, 73 percent of Ethiopia’s population was employed in agriculture, among the highest rates in the world. Between 2013 and 2021, service exports (mostly from Ethiopian Airlines revenues) accounted for 57 percent of the country’s exports, and goods accounted for 43 percent. Agricultural products represented 82 percent of goods exports, or 31 percent of all exports. Agricultural products (mostly coffee and oil seed) remained flat over the evaluation period but decreased to 68 percent of all export goods by 2021 because of agriculture’s low export growth compared with other sectors.8 This drop can be attributed to climate events; soil degradation; inadequate production methods; low access to inputs and finance; inadequate infrastructure, including irrigation infrastructure; and land ownership issues that hindered farm consolidation and kept farm plots small—1.4 hectares on average in 2012, compared with 2.0 hectares for Africa and 5.1 hectares globally (FAO 2010, 2024).

Bank Group strategies aligned with the government’s goal of improving agricultural productivity despite limits posed by a lack of broader economic reforms. Bank Group analytics recommended that Ethiopia’s agriculture sector should rely more on the private sector to boost productivity, with the government focusing on regulating the sector. However, the government preferred a larger state role. IFC’s strategy argued that meaningfully expanding the formal private sector’s role in agriculture would require both macroeconomic and sector reforms, including reducing duties and taxes on agricultural inputs and machinery, easing financial repression, liberalizing the exchange rate, and reducing the state’s dominant role in the sector. However, with such reforms unattainable at the time, the Bank Group strategies focused on areas of agreement, such as increased productivity and rural livelihoods.9 The World Bank’s more recent work has started to enable the private sector in agriculture more directly. A 2019 ASA explored mobilizing private financing for beef, coffee, and maize production. The 2022 Ethiopia Food Systems Resilience Project engaged the government in reversing long-standing policy, institutional, and regulatory issues and addressing its preferential treatment of SOEs.

The World Bank’s agricultural support contributed to the country’s rapid improvements in agricultural productivity. AGP generally exceeded its output targets. A World Bank impact evaluation of the second phase of AGP showed that it delivered a 17 percent increase in average crop yields, with greater gains in the districts, or woredas, already benefiting from the project’s first phase. The Lowlands Livelihood Resilience Project is ongoing, achieving some targets for providing farmers with agricultural assets and services but falling short of yield increase goals. The Livestock and Fisheries Sector Development Project is nearing completion and has achieved productivity increases close to targets. Several other projects provided block grants for agricultural extension services,10 although they do not evaluate these grants by service type.

While Bank Group support helped increase productivity and food production in Ethiopia, growing demand outstripped these gains, so food security and agricultural export performance both declined. During the evaluation period, cereal productivity grew by 3.7 percent annually, more than 2.5 times global and regional averages. The Food and Agriculture Organization’s food production index for all edible foods in Ethiopia increased by 3.2 percent annually. That said, agriculture’s share of goods exports declined, while agricultural imports grew by an average of 10.8 percent annually. Moreover, severe food insecurity increased from 14.1 percent in 2018 to 21.1 percent in 2021 (World Bank 2024j).

There is no clear evidence that the World Bank’s community-driven agricultural approaches were effective. Several agriculture projects worked through community organizations, such as common interest groups (CIGs) of farmers. The World Bank typically provided grants and technical support to these groups to develop income-generating activities in sectors where demand was greatest but lacked mechanisms to track its effectiveness. The World Bank evaluation of AGP shows that project activities contributed to yield and income increases, but the improvements are not clearly linked to CIGs (Weldesilassie et al. 2019). Only 40.5 percent of beneficiaries perceived CIGs as productive or highly productive, which aligns with the percentage of CIGs that remained active throughout the project. Several projects involving CIGs included a graduation approach, in which successful CIGs scaled up and formalized as cooperatives, but there is little evaluative work on their economic viability or sustainability.11

The World Bank improved agricultural market access through infrastructure work but made less progress in linking farmers to markets. Agriculture projects included components to develop and link markets and value chains, but there is little evidence of a comprehensive strategy for sustainable improvements in these areas. For example, the Irrigation and Drainage Project dropped market access indicators because project delays and cost overruns forced it to scale back its scope, making it impossible to assess related outcomes. AGP financed infrastructure improvements, including rural roads and markets, reducing travel times from project districts to the nearest market by 38 percent. The Regional Pastoral Livelihoods Resilience Project also supported market infrastructure, exceeding targets for the value of animals traded in Ethiopia and showing modest increases in trade participation in project areas compared with control areas.

IFC-supported engagements were unsuccessful in improving agricultural productivity in the earlier evaluation period, but more recent results suggest some progress. IFC supported 12 advisory activities in agriculture, covering strategic priorities in livestock, coffee, barley, and collateralized financing. Only 2 advisory projects had validated project completion reports. Both projects delivered their intended outputs but did not demonstrate that client firms achieved higher-level outcomes, such as sustainable agricultural practices. IFC and the World Bank collaborated on pastoralism, and an IFC livestock activity advised outgrowers so they could work with the World Bank’s complementary Lowlands Livelihood Resilience Project, phase 1. Two IFC investment projects benefiting from concessional finance did not deliver anticipated results. An ongoing equity investment in a malting operation is supporting 80,000 farmers and has significantly increased malt production, reducing Ethiopia’s reliance on imported malt.

Several projects included irrigation components, but the World Bank’s overall success in expanding irrigation use was limited. The Irrigation and Drainage Project, approved in 2007 and completed in 2018, made slight contributions to introducing larger-scale irrigation systems and improving farmer access to irrigation. These modest results were largely due to the project’s rapid preparation and weak design that overlooked counterparts’ low implementation capacity. AGP1 and AGP2, the Food Systems Resilience Project, and the Regional Pastoral Livelihoods Resilience Project supported small-scale irrigation initiatives. This support was highly relevant to building climate resilience and boosting productivity, but there is no evidence it contributed to a sizable increase in the share of land under irrigation (see chapter 4).

The World Bank’s effectiveness in improving rural access to finance through cooperatives is uncertain. Several community-driven models created savings and credit cooperatives to provide financial services to farmers. Projects such as the Pastoral Community Development Project III reported increased savings and credit cooperative membership and loan access. AGP2 aimed to improve financial services by linking rural savings and credit cooperatives to farmer organizations but did not report progress. Neither project monitoring nor Bank Group analytics assessed the effectiveness or sustainability of the financial cooperative model, and the World Bank excluded it from the 2019 Ethiopia Financial Sector Modernization Roadmap, raising questions about the model’s effectiveness. IFC’s advisory services that aimed to help farmers use warehouse receipts as collateral for financing and were intended as a joint initiative with IFC’s investment services did not materialize because of the government’s financial repression measures.