Ethiopia and the Demographic Dividend

BY KATIE LUOMA | December 13, 2016

Despite the challenges of population growth, Ethiopia is on the path to a population age structure
suitable to experience a demographic dividend. The country has made progress in improving
health and development of its people, however, the benefits of a demographic dividend will
ultimately depend on the ability of Ethiopia to continue to implement appropriate social and
economic policies for the country’s benefit.

In recent decades, Ethiopia has made great strides in expanding access to education and health
services. Ethiopia’s focus on child and maternal health as well as family planning have achieved
impressive results. Contraceptive use among women 15-49 years old rose from 4.2 percent in
1990 to 34.2 percent in 2014. These changes have fostered a fertility decline from 7.2 children
per female in 1990 to 4.1 in 2014. Health improvements have also contributed to an increase in
life expectancy and a decrease in infant and child mortality.  Life expectancy rose from 47.1
years old in 1990 to 64 in 2014. Additionally, under 5-mortality decreased from 90.6 per 1000
births in 1990 down to 43.9 in 2014.

With the changes in rates of mortality and fertility, the age structure of Ethiopia’s population has
begun to shift from a high proportion of young people to a relatively higher share of working-age
people. The population pyramids below demonstrate this change between 1990, 2010, and the
predicted 2030.
Ethiopia has established proactive public policies to address its demographic patterns,
however, challenges still exist and there is a significant need for strong social and economic
policies to continue as Ethiopia begins to reach the demographic window of opportunity.

Health

As Ethiopia has delivered on ambitious health programs, obstacles in relation to young people’s
sexual and reproductive health, including adolescent family planning and child marriage are still
apparent. In addition to improving these health programs, more attention should be devoted to
quality of health services, effectiveness of health interventions, and financing of the overall
health sector.

Education

Education access and opportunity is crucial to a demographic dividend. The knowledge and
skills of Ethiopia’s working-age population will determine the extent to which Ethiopia can
capitalize on demographic changes. In Ethiopia, 65 percent of primary-school-age children
attend school, however, only 15 percent attend secondary school and young people’s literacy
rates continue to be low. Efforts to strengthen education for Ethiopian young people, particularly
girls, are essential for those that still receive no education, not enough education, or low-quality
education.

Jobs

Ethiopia’s large youth population creates an opportunity for economic growth if a sufficient
number of stable jobs are created for young people. However, among urban youth,
unemployment is at 29 percent. It is critical for Ethiopia to avoid the widespread youth
unemployment that has plagued some other African countries. Therefore, policies surrounding
economic growth, job creation, and technical training will ensure adequate employment
opportunities for young people entering the job market.

Will Ethiopia experience a demographic dividend?

Whether or not Ethiopia will see the benefits of a demographic dividend remains to be seen but
the outlook is hopeful. Ethiopia is well positioned to benefit from a demographic dividend if
fertility continues to decline and the current large young population is able to find productive
employment. Appropriate economic policies that promote growth will improve the gross
domestic product and grow savings. However, the future gains will become much more
impressive should these economic policies be matched with improvements in education, health,
and family planning. Such a focus on Ethiopia’s young population will guide the country
towards the “economic gift” of a demographic dividend allowing for the benefits of labor supply,
savings, human capital and economic growth to follow.
  UNDP IN ETHIOPIA 
 BLOG 
 2018 
 MANAGING DEMOGRAPHIC TRANSITION IN ETHIOPIA: WHERE TO FOCUS?

Posted on December 14, 2018

Managing Demographic Transition in

Ethiopia: where to focus?
3

Roza Mamuye, Associate Economist, UNDP Ethiopia

Improving worker productivity and capacity of its workforce together with increased access to
means of production is necessary for Ethiopia to reap demographic dividend and manage the
demographic transition.

Demographic transition is a concept devised to describe the change in age structure of a

population as a result of the dynamics in mortality and fertility rates. Demographic transition
basically has four phases namely pre-transition, early transition, late transition and post transition
depending on direction and speed of fertility and mortality rates and the net effect between the
two. Demographic transition generally parallels economic progress; modernization resulting
from industrialization, urbanization, education, empowerment of women, as well as substantial
overall socioeconomic development activates the shift towards low mortality and fertility rates.
There is a continuous development to the model to capture the dynamics such as migration,
economic hardship and, social and political stability and to entertain diversity of countries by
introducing new stage (phase).

Demographic transition is critical because of its interplay with economic growth and human
development. The change in population structure affects economic growth and development
through demand for resources, and basic services and also through supply of labour.  The term
coined to capture and explain this effect is demographic dividend. Demographic change could
result in either dividend or disaster depending on policies and its management. Even though
demographic transition has happened in many countries, it has not resulted in demographic
dividend in all of them underlining the importance of smart policies and strategic investments.
East Asia has been frequently cited as a success story for reaping demographic dividend by
combining rapid demographic transition with export-oriented policies that resulted in increased
the demand for labor.

Challenges related population growth spiraling out of control or weak mechanisms linking
demographic transition to social change could delay or even deny reaping demographic
dividend.  One of those important mechanisms or channels is job creation and productive
employment. However, it should be noted that the link between demographic transition and
demographic dividend is not necessarily one way; development could promote or speed up the
transition process.

Ethiopia has seen a significant decline in both death and birth rates over the years. However,
fertility rate is still high at 4.6 though slightly declining.  Fertility rate has declined by 0.9
percentage points between 2000 and 2016, the percentage change in rural areas was higher, but
the decline in rural areas only started after 2005. With regards to mortality rate, there was a sharp
decline in both child and adult mortality.

The share of the youth population (15-29 years of age) has reached 30 percent and the share of
the working age population is currently 55.4 percent, with more than half belonging to the youth
group. The share of children under 15 years of age is 40 percent, as a result, the age dependency
ratio remains high at 82 percent. Among the prominent features of the demographic change in
Ethiopia are youth bulge and high labor force participation. The phase of demographic transition
Ethiopia is in is where the middle of the pyramid, basically the working age group, is high. The
working age population has been increasing on average by 1.6 million people every year in the
past decade. The share of the youth population has been increasing steadily.

Demographic Transition and its Consequences

 
Source: World Bank, WDI 2016 and EDHS 2016

The figures demonstrate that Ethiopia is in the second stage of demographic transition known as
the early transition which is characterized by falling death rates but relatively high birth rates the
net effect being rapid population growth.

This shows that investments in children and maternal health have paid off in terms in decreased
mortality rates and hence the change in the population structure. However, the decline in fertility
is relatively slow indicating gaps on the coverage of family planning programmes as well as
educational attainment of women. Studies indicated that there is an inverse relationship between
level of education of women and fertility rate in Ethiopia.

The increase in share of the working age group and the number of new labour market entrants
have an overall impact of reducing the age dependency ratio, however, the actual benefit to the
economy is realized only through the level of quality jobs created. One of the main challenges of
population growth is creating adequate demand for labour to absorb the growth in supply. In the
absence of adequate demand the workforce is obliged to be unemployed or underemployed.

In Ethiopia, large share of the workforce, including the youth, is engaged in low productivity
sectors such as small holder agriculture and informal services. Due to the high fertility in the
rural areas and stagnation in the agriculture sector, the youth is fleeing to urban areas only to end
up in the informal services sector. The unemployment and underemployment in urban areas is
being aggravated by impacts of climate change and stagnation in the agriculture sector. In
addition, as a result of slow structural transformation, the job structure has not changed, majority
of employment is still in the agriculture sector followed by informal service sector.

Employment in the informal sector, though it increases the absolute number of the employed
population, can not necessarily translate in to human development gains for the employed. For
demographic dividend to happen, the employment should be productive. So, for Ethiopia the
dominance of low productivity sectors like agriculture and informal services, and micro and
small manufacturing could be a sabotaging factor for demographic dividend.

Studies and surveys show that there is a dichotomy in the Ethiopian labour market, where
industries report lack of qualified human resources as one of their impeding factors, while
employment surveys show that it has been hard for people with some level of education to find
jobs. So, promoting youth employment in Ethiopia in the face of the changed demographic
structure would touch on wide spectrum sectors, policies and institutions.

Promoting Youth Employment for Greater Demographic Dividend

Productive youth employment is one of the main channels through which demographic transition
benefits an economy. Turning a youth bulge and change in population structure in to a
demographic dividend needs appropriate policies and efficient use of resources. It demands a
well thought through policies and strategies towards enhancing productivity of those sectors as
well as enhancing the structural transformation towards industry. For Ethiopia to reap the first
stage of demographic dividend it needs to augment the value and competence of its youth
workforce and ensuring its productive employment.

The policies and strategies of the country should not just dwell on generating employment, but
productive employment. Harnessing demographic dividend requires creating of decent and high
productivity jobs. Accordingly, key policy actions should be able to address the root causes of
underemployment such as low productivity and low access to resources. This includes policies to
increase capital endowment per worker through encouraging capital investment particularly by
promoting domestic private investment. The most urgent interventions in this regard shall focus
on skills development through quality education and training, and increased access to means of
production for youth cohort.

Human Capital is the Key

Quality human capital development is at the center of promoting productive youth employment.
Revamping the education system is a must for Ethiopia, in order to improve worker productivity
and increase the capacity of the work force. This involves ensuring higher secondary and tertiary
school enrollment and completion rates. Higher education institutions should continuously
reform to respond to demands from technological progress and to be the hub of innovation.
Likewise, TVET system should step up to accommodate advances in technology and the
country’s direction towards transforming to industry. The TVET system now is designed only in
such a way to encourage self-employment in micro and small enterprises. This will reduce the
challenges faced by big manufacturing firms, including foreign-owned, in terms of supply for
qualified workforce and lessen jobs export.
In addition, to address the demand side, the country needs policies and laws backing up the
trained labour force and ensure decent work environment. For instance, the country cannot keep
promising cheap labour to attract FDI. The objective of attracting FDI should include creating
decent jobs for the youth. Building demand for labour also involves creating conducive business
environment, for the private sector, aided by strong institutions and macroeconomic stability.

 Linking the Youth to the Means of Production

The second main channel through which Ethiopia can promote productive youth employment is
through linking the youth to means of production such as capital, land and technology. Capital is
one of the critical factors in production and lack of access to capital is often reported by
Ethiopian young entrepreneurs as a challenge. Creating access to capital through deepening
financial inclusion is central to ensuring productive employment. Financial inclusion in terms of
access to credit encourages entrepreneurship and innovation. One the lingering problems faced
by young entrepreneurs in Ethiopia is the proverbial lack of access to credit. There is a need to
expand the financial services to include different kinds of loans to finance innovation and
investment on education and skills. Financial sector development will play a huge role in
promoting productive youth employment.