Prospects of non-traditional sources of development finance in Ethiopia
- Background and country context
Ethiopia was among the original pilot countries where the MDG-based planning was promoted and MDG Needs Assessment undertaken. As a result it has an exhaustive investment plan which informed the formulation of the Plan for Accelerated and Sustained Development to End Poverty (PASDEP I) which is MDG-based and whose implementation is fully supported by Cooperating partners here. The government also plans to use the second part of the Investment plan to inform the formulation of PASDEP II.
One of the fundamental features of MDG-based planning is embarking on an ambitious plan (transformational rather than incremental) to meet the MDGs. This was the basis for the MDG NA studies to determine the full cost complement to meeting the MDGs at the country level. Results of the MDG NA indicates that Ethiopia needs US$ 121 per capita per annum to meet the MDGs of which public sector spending needs are US$ 91 per capita per year. Ethiopia’s population is about 77 million.
In the recent past, Ethiopia has embarked upon ambitious public investments to address some structural challenges in energy, communications, housing and education sectors among others. It is currently constructing five dams (the Tekeze, Gilgel Gibe II, Beles, Gilgel Gilbe III and Fincha hydropower plants) with a total capacity of about 3000MW to address the chronic electricity shortage and also for export. The road infrastructure is also being massively overhauled and extended. An extensive housing scheme is also being undertaken by government in which a number of condominium units are being built and so are a number of schools. However, IMF reports in its January 2009 Country Report 09/34 that “Ethiopia’s ambitious development policies have delivered rapid economic growth, but also contributed to rising inflation and strong import demand”. It explains that shocks emanating from the rise of international oil prices and fertilizer (by 150 percent and 75 percent respectively) have been responsible for pushing the balance of payments into a position of immediate and serious vulnerability, and that soaring food prices have adversely affected low-income households. The Fund projects that the adjustments to the shocks and domestic imbalances will lead to a significant slowdown in Ethiopia’s economic growth in 2008/09.
Ethiopia has been experiencing declining revenue receipts as a percent of GDP for the past three years. Furthermore, linear projection for revenue (see Sireh-Jallow (forthcoming)) indicates that, with the current status quo, Ethiopia will reach the revenue levels needed to meet the MDGs by 2022/23 some 7 to 8 years after the MDGs 2015 deadline and if current trend of expenditure are maintained, inflationary pressures will be exerted on the economy. There is therefore a need to shift this trend and non-traditional sources of development finance can be one variable that can do this. Again Sireh-Jallow (forthcoming) also show that Ethiopia has the potential to increase fiscal space up to US$ 140 million of 0.63 percent of GDP per annum from carbon sequestration if deforestation rates are reduced by 50% using baseline data from mongabay database.
It is in this regard that UNDP Ethiopia is supporting the Government of Ethiopia to identify potential sources of non-traditional development finance and catalogue the policy interventions needed to create the fiscal space. As a result, the Ministry of Finance and Economic Development and UNDP Ethiopia are commissioning this study to be undertaken by a team of national and international consulting institutions.
- Objectives of study
Even in the absence of the financial crisis, African countries were challenged with resource constraints in the scaled up levels needed to meet the MDGs, and as the results of the MDG Needs Assessments show, Ethiopian is no exception. There is therefore a clear need for other sources of development finance to be explored and exploited. A number of non-traditional sources offer Ethiopia the potential to increase these. Hence the objective of this study is to identify potential non-traditional sources of development finance for Ethiopia and catalogue the policy interventions needed to free up the fiscal space.
- Tasks
The consultants will undertake the following tasks:
1. Review and assess other international practices in non-traditional resource mobilization.
2. Conduct interviews with key stakeholders
3. Produce an empirical analysis as per the expected results below.
4. Produce an initial zero draft to be reviewed by the Ministry of Finance and Economic Development and UNDP. Comments from these will be incorporated and the first draft submitted.
5. The First Draft will be subjected to a National Stakeholders workshop and comments from this will be incorporated into a final report.
6. Collaborate to enhance national capacity in this area.
The expected result of this exercise is an empirical study that contains: 1. Clearly identified set of non-traditional sources of development finance for Ethiopia.
2. For each source, a number of scenarios should be given illustrating different recommended policy interventions.
3. For each scenario, a catalogue the corresponding set of policy options whose successful implementation will result in the expected increase in financing for development.
The study will be undertaken by a team comprising an international institution with demonstrable capacity to undertake the study with international experience in this area. Creativity in achieving the expected results will be given high emphasis during technical evaluation. The selected international institution will work with a national institution with potential to internalize the capacity development that can result from the joint collaboration The study is expected to last about 16 weeks and the services of the consultants are expected to be about eight 8 weeks spread within the sixteen weeks. A technical and a financial proposal shall be submitted separately before 10 Aug 2009 at the following address with the following remarks “Prospects of non-traditional sources of development finance in Ethiopia” PROCUREMNT UNIT UNITED NATIONS DEVELOPMENT PROGRANMME ECA OLD BUILDING, 7TH FLOOR, ADRICA HALL MENELIK II AVENUE P.O.BOX 5580 TEL +251-11-551-5177 FAX +251-11-551-5147 ADDIS ABABA ETHIOPIA Interested institutions will have to request through the following email addresses to receive a complete set of RFP & TOR.