Climate Risk Management in Finnish Development Cooperation - Gaia

adaptation. The Intergovernmental Panel on Climate Change (IPCC) forecasts that by 2020, rain-fed
agricultural production in several African countries will decline by 50 percent. On the other hand, in
temperate regions, production may increase due to warmer weather, allowing the generation of a
surplus. Such changes are likely to affect patterns of international trade, with gains in some places
and losses in others, in ways that are yet to be fully understood. In addition, the changes in energy
prices as well as shape and structure of a post-2012 climate agreement could have considerable
trade related implications for developing countries. As many poor countries depend on export
revenues from few sectors, in particular agriculture, these economic implications need to be given
careful consideration in trade and climate policy processes. 70
Impacts on Ethiopia
Ethiopia’s major industry is agriculture and animal husbandry (80 % of total employment).
Government and services account for 12 % and industry and construction 8 %. Agriculture accounts
for nearly half the country's GDP, 60% of its exports and 80% of total employment. Major trading
partners are Saudi Arabia, Djibouti, US, Germany, China, Japan, Italy and India. 71 Coffee is critical to
the Ethiopian economy with exports of some $350 million in 2006, but historically low prices have
seen many farmers switching to other crops to supplement income.
The Ethiopian economy has done well in recent years, with GDP growing by 11.4% in 2006-07 and
with the poverty headcount reducing from 44% in 1999/2000 to 39% in the recent 2004/05 survey.
There have been important recent gains, especially in human development indicators, transport, the
investment climate, small town development, and the fight against food insecurity. Pro-poor
spending as a share of the budget has risen from 41% in 1997/98 to 62% in 2005/06. The Country
Economic Memorandum 2006 (CEM) on Growth and Governance finds that important progress has
been achieved in the past decade, largely driven by improved institutions, including at the regional
and local levels, which have been able to deliver a scaling-up o f services and infrastructure. 72
However, significant challenges remain to meet the Millennium Development Goals (MDGs),
especially the goal of halving poverty by 2015, particularly considering that the recent progress is
from a very low base and that the Ethiopian economy remains highly vulnerable to climate shocks.
Inflation was high (18% during 2006/07), with associated increases in food prices. Imports have been
growing faster than exports, enlarging the trade deficit. However, public expenditure has been well
managed in recent years and the fiscal deficit has reduced from 4.6% of GDP in 2005/06 to 3.6% of
GDP in 2006/07. 73
The Ethiopian agricultural sector is dominated by small-scale farmers who employ largely rain-fed
and traditional practices – a state which renders Ethiopia highly vulnerable to climate variability, and
thus to climate change. An indication of the impact that climate variability and climate change has
70 ICTSD 2008: xv
71 http://www.fco.gov.uk/en/about-the-fco/country-profiles/sub-saharan-africa/ethiopia?profile=economy&pg=2
72 World Bank (2008:9)
73 World Bank (2008:9)
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