Officially known as the Federal Democratic Republic of Ethiopia, Ethiopia is a country located in the Horn of Africa. It shares the border with Eritrea to the north and northeast, Djibouti and Somalia to the east, Sudan and South Sudan to the west, and Kenya to the south. Ethiopia is the most populous landlocked country in the world, along with the second-most populated nation in Africa with around 88 million residents (Ababa, 2013). In this paper, the following writing is discussed about the major aspects of foreign aid (FA) to Ethiopia, which is structured respectively from the general information about official development assistance in Ethiopia, the identities of major donors bilaterally and multilaterally, the diversification of ODA, the impact or effectiveness of FA in the targeted areas, the issues in distribution of aid resource, and to lastly with the conclusion and future perspective of FA.
Ethiopia is a center of international attention in the Horn of Africa by reason of both its consistently high rates of economic growth and for its continued problems with widespread hunger and poverty. The nation is also noteworthy for being among the most dependent on FA. Standing the worldwide list of countries receiving aid from the US, UK, and the World Bank, the nation has been receiving $3.5 billion on average from international donors in recent years, which represents 50 to 60 percent of its national budget (Flores & Mousseau, 2013). Moreover, the flow of grants and concessionary loans to Ethiopia from bilateral and multilateral donors has increased significantly in the last 20 years. ODA net disbursements have risen from just over 15 million USD in 1960, almost all of which channeling from bilateral sources (OECDs Development Assistance Committee (DAC) countries), to 3820 million USD in 2009 (Geda & Tafere, 2011). Ethiopia has implemented a development scheme characterized by large-scale infrastructure development and the promotion of large-scale agricultural projects; additionally, following with ‘land resettlements, massive irrigation infrastructure, and unmatched concessions to foreign investors, Ethiopia’s development model focus on expanding the national ‘export basket,’ through a transition from agricultural to agro-industrial production’ (Flores & Mousseau, 2013, p.6).
Ethiopia is currently ‘the largest recipient of British aid and is among the largest non-war state recipient of US aid’ (Flores & Mousseau, 2013, p.6). After 2002, followed by Germany, Netherlands, Canada, Italy and Japan respectively, United States and United Kingdom are the biggest origins of bilateral ODA to Ethiopia. United States and United Kingdom alone have, on average, ‘accounted for about 25 % of all ODA gross disbursements to Ethiopia’ (Geda & Tafere, 2011, p.9). According to the data from the same publication, this period has also seen growing of countries such as Canada and Spain. Canada offered Bilateral ODA amounted to just over 6 million USD in 2002. In 2008, it had surged to over 145 million USD, though it dropped to 87 million USD in the global financial crisis period. Spain shared the same story. In 2002, bilateral ODA from Spain was just under 3 million USD but went up to over 84 million USD in 2009. Conversely, ODA from Italy has been decreasing in recent years after reaching the peak in 2006. As of 2009, it was 54 million USD, which fell down 49% from the peak level of 105 million USD in 2006. On the other hand, the biggest donors of multilateral ODA gross disbursements to Ethiopia are International Development Association (IDA), African Development Fund (AfDF), and EU institutions. From 2002 to 2009, IDA, AfDF and EU institutions accounted for 53.6%, 16.6% and 11.2% of multilateral ODA to Ethiopia, respectively. The important component of IDA is assisted by major debt termination in 2006 under the Multilateral Debt Relief Initiative (MDRI). Major increase could be noticed in these three institutions’ ODA to Ethiopia during the post-Kananaskis period. IDA’s, AfDF’s and EU Institutions’ ODA provided to Ethiopia 490, 91 and 73 million USD respectively in 2002. In 2009, these figures grew to 1041, 308 and 203 million USD. ODA from EU institutions had reached 369 and 447 million USD in 2007 and 2008 respectively. But it appears that such flows to Ethiopia from EU institutions have been affected by the 2008 financial crisis. In general it appears that, over the last decade bilateral flows have accounted for about 49.6 percent of total aid, leaving multilateral sources to account for 50.4 percent.
As a matter of fact, China presence in Ethiopia is noticeable. Chinese development assistance, furthermore, is directed by a concept of mutual gain (Davies, 2008). Coupled with bilateral aid, the Chinese government offered financial support to Chinese companies to establish an existence in Ethiopia as China seeks a global presence (Paul, Weinthal, & Harrison, 2012). Chinese investment is frequently directed toward building new highways and hydropower projects. Here as well, the Ethiopian prime minister ‘says that China has ‘rescued’ Ethiopia with billion dollar loans for roads, dams, and other public infrastructure projects’ (The Economist 2012 as cited in Paul et all. 2012). Because many donors, including the World Bank, began to pull back in the 1980s from channeling funds to such projects due to pressure from civil society groups, financing for these large dam projects has come from Chinese sources. Ethiopia, for example, has signed a $1.9 billion deal with China’s Sinohydro Corporation to construct several hydroelectric dams (Nasrawi 2010 as cited in Paul et all. 2012). In 2006 to 2007, the Chinese aid to Ethiopia amounts to about 0.14 percent of Ethiopia’s total aid, which this in fact is related to the grant the Chinese government gave to the construction of state of art flyer road and other similar city roads, and it is also partly the Chinese grant to support the expansion of technical and vocational education in the country (Geda & Tafere, 2011).
Ethiopia was ‘the world’s largest recipient of food aid, with nearly $1.2 billion in aid allocated’ (Flores & Mousseau, 2013, p.6). The Ethiopian Ministry of Finance and Economic Development (MoFED) classified 10 classes of ODA disbursements on the basis of sectoral allocation: Agriculture & Rural development, Road, Energy, Health, Education, Water, Transport & Communication, Industry, Multi-sector (cross-cutting), and Other sectors (Geda & Tafere, 2011). Bilateral ODA for the 2002-2009 period is generally higher than multilateral ODA, except in recent years when multilateral net disbursements exceeded bilateral ones in 2007 and 2009. However, all sectors receive more ODA from multilateral sources than bilateral ones. Possibly, this shows that more bilateral ODA has been flowed through NGOs and various sectors (non-MoFED channels) than multilateral ones. Regarding the composition, (cross-cutting) ODA disbursements are significantly higher than sector specific flows. Such flows had an averaged of over 40% between 2003 to 2004 and 2007 to 2008. Agriculture & rural development, road, and health sectors are the next biggest recipients of ODA accounting for about 17%, 13% and 9%, respectively. Transport & communication and industrial sectors received the smallest support in average less than 1% total ODA flows to Ethiopia. In recent years, ODA to road, water and health sectors are growing while for agriculture & rural development and education is gradually dropping. In spite of receiving substantial share of total ODA disbursements, multi-sector (cross-cutting sectors) ODA flows and ODA to road, agriculture & rural development and educations sectors seem to have been instable. As ODA flows contracted following the 2005 election, multi-sector supports and flows to the road sector were affected the most, while there was also significant fall in flows to agriculture & rural development and education sectors. On the other hand, flows to the later two sectors fell following the disputed election year (2006 to 2007) and continued to drop since then. ODA disbursements to energy and health sectors, however, do not seem to have been affected much. The major source of decline in ODA to sectors could be traced to either bilateral or multilateral sources, except flows to cross-cutting sectors, which have seen their size from both sources shrink right after the 2005 elections. The decline in ODA disbursements to agriculture & rural development, and road sectors was mainly a result of decrease in multilateral ODA. On the other hand, contraction of bilateral ODA is responsible for decline in FA to the education sector after the 2005 election. During the 2003 to 2008 period, the multi sectors, agriculture & rural development, energy, education and water stood as the biggest recipients of bilateral ODA with 35%, 20%, 12%, 11%, and 6% share respectively. The bilateral ODA shares of agriculture & rural development and education sectors, however, appear to have a relatively less inconsistent change. The former had initially grown and then stabilized at about 22%, while the later has fallen steady. During the same period, multi-sector projects, road, agriculture & rural development, and health sectors were the biggest recipients of multilateral ODA averaging 45%, 17%, 15%, and 11% share respectively.
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