When we talk of structural transformation of an economy, the first and basic thing that we came across with is the transformation of the economic base from agriculture to industry or service sectors. But, many economists agree and give due emphasis to the idea that it involves moving labor from low to higher productive activities. It might not always sectoral transformation from agriculture to industry as a transfer of labor from one sector to another or between sector from agriculture to industry. Instead, it is also possible for transformation to occur within sectors (for example from subsistence farming to high-value crops.) Thus, it also involves high value activity within a sector.
Generally, according to UNECA’s paper, Economic Transformation for Africa’s Development, economic transformation necessarily involves: a reallocation of resources from less productive to more productive sectors and activities; an increase in the relative contribution of manufacturing to GDP; a declining share of agricultural employment to total employment; a shift in economic activity from rural to urban areas; the rise of a modern industrial and service economy; a demographic transition from high rates of births and deaths (common in underdeveloped and rural areas) to low rates of births and deaths (associated with better health standards in developed and urban areas); and a rise in urbanization.
But what needs to be stressed here is the fact that to bring about economic transformation, it is not always a prerequisite to have transformation between sectors. In fact, it is also possible to significantly increase the productivity and value of agriculture and agricultural products through the modernization and commercialization of agriculture. As also emphasized in UNECA’s study, besides industrialization, commercialization of agriculture is also crucial. The paper stated that: an effective transformation agenda must also comprise: the transformation of rural areas into vibrant hubs of agri-business and industrial activity.
In the context of a developing nation like Ethiopia, it is an obvious fact that in the long run, poverty reduction cannot be sustainably achieved without economic transformation of any kind. Because, basic structural transformation is related with creation of better jobs which leads to better productivity, higher income etc. Indeed, Ethiopia has achieved significant economic growth over the last decade. Despite the progress, at the center of the country’s complex course of economic transition lies the challenge of addressing the structural fragility of the economy.
This is what has been reasserted by Deputy Commissioner of National Planning Commission, Abraham Tekesete (PhD) during a recently held conference on dimensions of structural transformation in Ethiopia. He noted that Ethiopia has persistently pursued the prerequisites for structural economic transformation and industrialization by investment in human development, infrastructure and energy, and enhancing capital accumulation. Yet, the structure of the economy remains weak and vulnerable to natural and market related shocks. Last year, was a resounding reminder about the significance of addressing the vulnerability of the economy to climate change and global economic environment, he recalled.
Hence, exogenous factors would reduce the speed of economic growth and have other consequences. “Unless structural change and diversification of the economy is accelerated, inadequate job opportunities particularly for the growing youth population would become a growing challenge not only in urban areas but now even in rural areas,” he said adding, “This in turn dampens the high expectations of the youth and becomes a source of frustrations and unrests. In short, structural fragility of the economy puts a break to the sustainability of inclusive development and transition to middle and eventually to high income economy.”
True, Ethiopia’s GTP II, emphasis the significance of private-sector led structural transformation and industrialization in order to enhance productivity and competitiveness of the overall economy, create jobs, enhance skills and technological capabilities, build the resilience of the economy to natural and market risks. Yet, according to the plan, the transformation of agriculture in terms of productivity growth, commercialization and diversification remains critical, according to Abraham.
It is a widely held view that in developing countries, economic transformation must be taken more seriously if long term goals improving standard of living and reducing poverty are to be achieved. Yet, the challenges for a developing country like Ethiopia in transforming the economic base and achieve industrialization are multifaceted capacity limitation. Hence, many argue that commercialization and modernization of agriculture should be the first step.
In agriculture based economies, it is vital to modernize and commercialize the agricultural sector. John W. Mellor, Paul A. Dorosh in their working paper Agriculture and economic transformation of Ethiopia’ had underlined that: In the normal process of economic growth, non-agricultural sectors grow more rapidly than the agricultural sector. The slower growth of agriculture, its relative decline, concern about the difficulty of modernizing agriculture and pessimism about the potentials for technological change in agriculture suggest to some that agriculture should not be given priority for scarce resources in the interests of rapid overall growth. There is substantial evidence, however, that raising agricultural productivity is possible and that agricultural growth plays a key role in economic growth, particularly in low income countries.
Hence, they had argued that a high rate of agricultural growth has far-reaching positive implications for increasing employment and accelerating poverty reduction. High agricultural growth also helps avoid the creation of megacities with large slum populations. In order to achieve this rapid agricultural growth with positive economy-wide linkages, however, it is necessary to engage middle farmers, large enough to adopt new technologies and produce significant marketed surpluses, but small and numerous enough to have spending patterns that drive a vibrant rural non-farm sector.