By Daniel Teferra (PhD)*

The absence of a spontaneous rural capitalization is primarily responsible for the continuing poverty and recurrent famine in Ethiopia.  The spontaneous capitalization process that began during the imperial regime of Haile Selassie was hampered by the lack of a genuine land reform program that can turn land over to the peasantry.  The state ownership of land that was instituted by the military regime of Mengistu Hailemariam and which is continued under the current regime has brought the process of spontaneous rural capitalization to a halt.

Ethiopia may be income-poor, but it is potentially rich.  “Ethiopia is endowed with good weather for agricultural production, has many rivers and lakes, fairly good and predictable rainy and dry seasons, and a large supply of cheap labor and arable land for crop and animal farming.  Most of the staple crops could be grown in Ethiopia two to three times per year on the same land.  Despite three to four months of freezing temperature in the Midwest of the U.S.A., we grow and harvest two times per year on the same land the same food crops, such as, teff in Oklahoma and paprika in southwest Texas.”[i]

It is, therefore, logical to ask why Ethiopia, a country that is potentially rich, can’t feed its own population.  The answer to this question is clear and simple.  Ethiopia has taken so long practicing subsistence agriculture.  Subsistence production is primarily responsible for the country’s continuing poverty and recurrent famine.

Transition from subsistence production to commercial farming depends first upon a genuine land reform program that can turn land over to the peasantry. This will allow the peasantry to improve its social status and acquire improvement capital as well as enable domestic and foreign entrepreneurs to invest in agriculture. That subsistence and poor production in farming and herding dooms Ethiopia to starvation and famine in bad years is a function of rural undercapitalization and inadequate surplus rather than an inevitability of Mother Nature.

The current government, however, like its predecessors, does not believe in transition to commercial farming.  The conventional wisdom is that all land has to be controlled by the state because turning land over to the peasants will encourage them to sell their holdings and migrate to urban centers thereby increasing the number of the unemployed. Thus, the government, the argument goes, should focus on small farmer development policy instead of transition to commercial farming.

However, small farmers are inefficient and cannot produce the surplus needed for food and industrialization. For instance, in South Africa, due to an efficient commercial farming system, agricultural productivity is sixteen times higher than in Ethiopia.  Thus, South Africa employs only 13 percent of its population in agriculture whereas Ethiopia employs 87 percent.[ii]  There is no evidence to support that the so-called small farmer policy is working.  Peasant migration to urban centers has in fact continued unabated due to population explosion, dwindling and uneconomical farm sizes and widespread hunger in the rural areas.

Ethiopia’s production is still poor and the country’s per capita income is among the lowest in Africa.  Ethiopia still lives under the threat of famine.  “Some 13 million people in Ethiopia depend on some degree of food aid.”[iii] The worst manifestations of famine have been avoided so far only because the United States and other countries are giving Ethiopia food assistance on a regular basis.

Ethiopia’s recent five year plan predicts an average annual economic growth of 11 percent to 15 percent.[iv] Looking at the World Bank’s World Development Report data, the average annual growth (net) between 2005 and 2009 was about 8 percent (see Table I below).  The growth rate between 1990 and 1994 was -2.9 percent whereas for 1995-1999 and 2000-2004, the economy grew at only 1.8 and 2.9 percent respectively.

Table I

Average GDP and Population Growth (annual %)


Year    GDP Growth Pop. Growth    GDP Growth (net)

1990-94         0.6                   3.5                   -2.9

1995-99         4.7                   2.9                     1.8

2000-04         5.5                   2.6                     2.9

2005-09        10.7                  2.6                     8.1

Source: Based on information in The World Bank,

World Development Report, various years.

Economic growth between 2005 and 2009 was higher than preceding periods. This is attributable mainly to a consistent upward trend in government (G) and consumption (C) expenditures (see Table 2 below). Net exports (X) during the same period showed ever increasing negative figures and net inflows of foreign direct investment (FDI) were negligible. Data on gross private domestic investment is not available.  The stimulus from increased government and consumption expenditures seems to have shown a minimum impact on GDP because of the leakage from the expenditure-income stream of the economy due to negative net exports.

The recent devaluation measures of the Birr taken by the government to correct the negative trade balance have worsened inflation and unemployment because Ethiopia’s productive capabilities are undeveloped and rigid still; consequently, they could not respond to the challenges and opportunities provided by the devaluation measures. Such measures could have helped the Ethiopian economy if Ethiopia had a favorable climate for entrepreneurs, a large number of responsive entrepreneurs and commercial farmers, private ownership of land and local ownership of industry, a large number of export commodities, a mobile and highly educated labor force, a well-developed capital market, a high saving rate and an average income substantially above subsistence. Thus, the so-called overvalued currency and deficits in the balance of payments and domestic budget are not the correct points of departure to understanding the fundamental problem of the Ethiopian economy.

Table 2

Domestic & Foreign Expenditures ($B)


Year                 G                      C                      X                      FDI

2005                1.5                   11.9                 -3.0                  0.265

2006                1.8                   14.6                 -3.2                  0.545

2007                2.0                   18.0                 -4.2                  0.222

2008                2.5                   24.8                 -6.1                  0.109

2009                2.9                   29.3                 N/A                  0.094

Source:  Based on information in The World Bank,

World Development Report, various years.


Ethiopia’s GDP base is quite small; and consequently, the reported growth rates have not resulted in improved income per capita. Thus, despite the government’s claim of rapid economic growth, Ethiopia’s per capita income is still among the very lowest in Africa. The per capita income in Ethiopia is less than the average income of the poorest African countries whose incomes per capita are less than $500 (see Table 3 below).

Table 3

Income Per-Capita ($) Comparison

Ethiopia and Poorest African Countries’ Average

Year                            Ethiopia           Africa

1978-1982                   134                  248

1990-1994                   216                  274

1995-1999                   136                  279

2000-2004                   124                  272

2005-2009                   255                  319

Source:  Based on information in The World Bank,

World Development Report, various years.

The Ethiopian economy cannot be able to feed its growing population which currently stands at 82.8 million.  Ethiopia’s overall production level, relative to its potential, is quite small.  For instance, in 2009, Kenya produced $29.4 billion worth of goods and services for 39.8 million people, whereas Ethiopia, with larger surface area and labor force, produced only $28.5 billion worth of goods and services for a population of 82.8 million, which is 2.8 times the size of Kenya’s. Ethiopia’s population is more rural and its agricultural productivity is lower than Kenya’s.  Kenya’s agriculture is more mechanized.  Kenya has 27 tractors per 100 sq. km. of arable land while Ethiopia has only two (see Table 4).

Ethiopia’s potential surplus for food and industrialization lies in earnings from its agricultural sector.  But Ethiopia’s agriculture is severely under-capitalized.

The spontaneous capitalization of agriculture of the late 1960s and early 1970s was arrested by a lack of land reform program that can turn land over to the peasantry. The biggest resistance to land reform came from the landed aristocracy, all the more effective because the commercial middle class was small and weak.

But despite the overthrow of the imperial system and landed nobility in 1974, the Ethiopian peasantry still works the land it does not own; and consequently, the fundamental question of land reform in Ethiopia is still unresolved.  The lack of a genuine land reform program that can turn land over to the peasantry is the major obstacle to agricultural capitalization and widening of the commercial middle class in Ethiopia.

Agriculture has been the main economic base of Ethiopia for centuries.  Grain cultivation began in Ethiopia thousands of years ago.  However, agricultural implements and practices have remained virtually unchanged for centuries.  Even the oxen-drawn plow, which is at the center of Ethiopia’s agriculture, is not widespread.  Farming is mainly done by hand with the help of machete, hoe and burning.  Livestock rearing is at a relatively early stage, depending entirely on migratory pastoralists, who live in semi-permanent homes, and are not yet prepared to function at other than herding.  Because of rising population pressure in the rural areas, plot sizes have continually diminished and become uneconomical to farm.  The average size of cultivated holding per peasant is less than one hectare.

Table 4

Looking at Kenya and Ethiopia


Kenya                      Ethiopia

Surface area                                       0.6 million sq. km.      1 million sq. km

Population                                           39.8 million                 82.8 million

Rural Population (% of total)              78                                83

Population growth (annual %)            2.6                               2.6

Labor force                                         18.2 million                 38.2 million

Cropland (% of land area)                  0.8                               1.0

Arable land (hectares per person)     0.1                               0.2

Tractors (per 100 sq. km of arable)   27                                2

Agric. Productivity (US$)                     345                              288

GDP (current U.S$)                             29.4 billion                  28.5 billion

GDP per capita (U.S$)                         738                              344

Source:  The World Bank, World Development Indicators 2008 & 2009.

In the late 1960s and early 1970s, during the imperial regime, spontaneous capitalist agriculture, energized by the demand for industrial crops and staple grains, was growing in much of eastern, southern and western Ethiopia. In the north, especially radiating out from Addis Ababa and other urban centers, there was a considerable truck farming.  The new farms and the many new factories that opened in Addis Ababa, Asmara and Dire Dawa were mostly owned by Ethiopian entrepreneurs and foreign residents.[v] Big landlords began to capitalize on the growing market by leasing their land or establishing farming enterprises by evicting their tenants.  At the same time, the government increased its extension programs and disseminated high-yielding varieties, fertilizers, farm implements, draught animals and funds to model farmers and peasant cultivators on credit.  The benefit, however, went mainly to those peasants who owned land and could afford the collateral necessary to guarantee the loans.  Landless tenants, the rural majority, were unable to participate in the program because they did not own land to use as collateral for the loans.  Furthermore, tenant eviction was on the rise because tenants were not protected by written contracts.  Over 90 percent of the tenancy agreements were verbal.[vi]

A separate ministry of land reform was created by the imperial government to deal with the various land issues and turn land over to the peasantry but this was opposed by the landed aristocracy: the imperial family, nobility and high level bureaucrats who owned most of the land.  Only 9 percent of the rural population at this time owned the land they worked, and 46 percent were landless tenants.[vii]

The resistance to land reform impeded further capitalist development and therewith the development of the countryside.  Still, commercial farming, although it accounted for a very small portion of agricultural production in the 1960s, had a positive impact on the countryside.  It employed over 20, 000 laborers by 1965.  There were over 200 farmers who had at least one tractor each.[viii]

In 1975, the military takeover removed some of the restrictive elements of the traditional land tenure systems but abruptly terminated the spontaneous process of rural capitalization by declaring all rural land and commercial farms state property.  The cornerstone of the new agricultural policy was the Land Reform Proclamation of 1975.[ix]

The land reform—something new in the history of Ethiopia—accorded former landless peasants use right, but not private ownership, to their existing holdings and farm implements.  Rents, debts and other obligations owed to landlords and all pending rural land cases were annulled in one stroke.  A farm family was allowed use right to a maximum of ten hectares of land.  The land was not to be sold, mortgaged, or disposed of in any form, but its use right was inheritable.

The proclamation granted use right to those willing to cultivate land by their own toil and prohibited the hiring of farm labor except by older people, widows, and children unable to do farm work.  It provided for the creation of peasant associations entrusted with the tasks of rural development and administration through collectivization.

The proclamation brought about a fundamental change in the rural power structure but overlooked the security of tenure and the effect of private ownership on incentive.  For instance, peasants in the past had favored the idea of equal distribution of land and getting their shares registered under their names in the government’s tax books so that they can be protected against claims by the powerful.  Furthermore, the proclamation failed to take into account historical experiences and local conditions, useful for agricultural capitalization. Partnership arrangements among ordinary peasants were swept away along with landlordism by the Proclamation.  In the past, joint ventures were used to overcome shortages of capital (oxen, implements, and seeds) and to support incomes.  Peasants pooled their oxen to plow one another’s land on alternate days.  Hardworking peasants who had the extra time and capital worked others’ lands to improve their incomes. Worse still, the state confiscated all commercial farms without any compensation.  Cruel and excessive measures were used to drive commercial farmers out of the countryside.

Alas, the much awaited reform to turn land over to the peasantry did not happen.  Use right and collectivization did not improve the status of the peasants.  Peasants still worked the land they did not own as tenants of the state lacking the pride and security of an owner.

As far as the herding economy was concerned, the proclamation did not alter the free communal pasture system.  Instead, it strengthened the old migratory practice by giving herders possessory right over land they customarily used for grazing.

The abolition of private property meant that merchants, enterprising bureaucrats and urban dwellers could no longer capitalize on their savings by investing in agriculture.  But it is difficult to expect hungry peasants to undertake the capitalization process voluntarily.  The state was therefore the only provider of investment capital, but it did not have sufficient revenue for investment due to the poor economy and low levels of taxable income.  The land use fees and agricultural income taxes that the state collected from the peasantry amounted to less than 5 percent of the total revenue and these were used mainly to finance the rural bureaucracy.[x] The government’s investment in agriculture was less than one percent of GDP.  Consequently, food production per capita fell to below the pre-reform level and annual food imports increased dramatically.[xi] A devastating famine struck the country again in 1984-85.

In December 1991, the current government issued its economic policy[xii] whereby the state continued to own all land and essential sectors of the economy. It leased use right to peasants for a 99-year period, but gave them again no private ownership of land.  Therefore, land alienation through sale or mortgage in order to obtain improvement capital was prohibited.  Peasants were allowed to lease their use right and hire farm labor.  There was no, however, radical departure from the land policy of the former military government.  Furthermore, the kilil system of administration divided the regions along ethnic lines and created new barriers to free movement of capital and labor.

The current government boasts its so-called small farmer development program in its various plans, but no significant change has occurred in the countryside so far.  The government does not have the money to invest in agriculture because the economy is still poor and taxable incomes are low.  Peasants could not borrow improvement capital because they do not own land to use as collateral.  Enterprising individuals from the urban areas could not invest in agriculture because of the barriers created by the kilil system.

The government has recently embarked on a program of leasing vast areas of rural land to domestic and foreign entrepreneurs for commercial development.  It is expected that this will bring capital, skills and infrastructure to the rural areas as well as increase production for domestic consumption and export.  There will be three million hectares of land to be leased out over the next five years at a price of about $10 per hectare per year.[xiii]

The land lease policy opens the lowland, border areas in Gambela, Ogaden and Beni-Shangul.  However, these areas, although largely uninhabited, are inaccessible and far from potential markets.  The government expects the investors to build and periodically maintain access roads.  The investors are also expected to build a new farming community to accommodate farm workers.  All this will require massive startup capital.[xiv]

As the sole owner of all rural and urban land, the government has relied since 1991 largely on sale of long-term property leases to fill its operating budgets.  A legitimate concern about the lease policy is that it could lead to eviction of peasants because they do not have the protection of ownership rights against the government’s actions.  This problem has already happened in urban areas.  Many urban dwellers in Addis Ababa have been moved at will by the government to the outskirts of the city to open up the land for lease to high rise developers.  In Addis Ababa, the government auctions off lease property at a price (depending on the location) of Birr 15,000 to Birr 25,000 per square meter.

No serious student of Ethiopia will believe that the land lease policy or small farmer development will bring about agricultural transformation and economic development in Ethiopia.  Economic production and the status of the peasantry can improve when private ownership of land is allowed and farming becomes in Ethiopia more and more a capitalist enterprise.  Only private ownership of land and rural capitalization can save Ethiopia’s peasants from the curse of famine, disease and war.

While Ethiopia has yet to free its peasants, human history is replete with examples of societies that have transformed their economies in a fundamental way by first uplifting their peasantry.  One such example was imperial Japan.  Over one hundred years ago, Japan was aware (as the Ethiopian state today has not been) that improved agriculture lay at the foundation of a strong nation.  The Japanese Government understood that this required lifting many of the restrictions on free movement of people and capital.  It required land to be turned over to the peasantry and taxes to be paid at uniform rates on assessed valuation rather than (as had been the case) on the size of the harvest so that the peasant farmers could keep the profits from any increments to production.[xv]

In czarist Russia, Alexander II in 1855 marked the beginning of a new push forward in Russia’s modernization.  He sponsored the abolition of serfdom, and the emancipation decree of 1861 inaugurated a whole series of major modernizing reform in the 1860s which gave new momentum to the long-stagnant process of Russian modernization.[xvi]

Even in the United States of America, where land ownership is not an absolute right, land tenure rules were developed that grew out of the history and culture of the country.  Thus, the Homestead Act of 1862, which created numerous privately owned family-farm units from large landed estates and reserves of unused land, became strong democratizing measures.  To these were added a host of other basic tools by which the people could express their public interest in private property.  For instance, credit sources made land purchase feasible.[xvii]

In the 1700s, the Dutch were the first to lead in productivity, with the British and the Americans soon catching up, because many Dutch farmers owned their land, the feudal nobility was small and weak, and the potential power was in the hands of entrepreneurs.  There was greater freedom to produce and sell agricultural products and manufactured goods.  Firms could ship their products to markets and hire workers without political restrictions.[xviii]

The truism is true: “Give a man the secure possession of a bleak rock, and he will turn it into a garden; give him a 9 (or 99) year lease of a garden and he will convert it into a desert.”[xix]

Property is the foundation for individual rights. To the Ethiopian peasantry, like in any other place, ownership of land is more than a source of wealth and economic security. It is the source of political power and social justice.  The peasantry sees in the ownership of land a kind of job security and assurance that whatever happens, it will at least have food and shelter.  Through land ownership the peasantry hopes for status in its communities, the right to act and speak freely, the opportunity to see its children given an education, and the right to share in control over its government.

Despite the overthrow of the feudal nobility in the early 1970s, the peasantry in Ethiopia cannot own land, invest in agriculture and move freely seeking work and investment opportunity in order to improve its status.  A genuine land reform program that can turn land over to the peasantry is still lacking; and consequently, the under-capitalization of agriculture is continuing.  No wonder then why Ethiopia is still poor and susceptible to periodic famine.

[i] Selashi Kebede, “What Does It Take to Encourage Western Investors to Come to Ethiopia,” A paper presented at African Economic Development Conference, Addis Ababa, June 3-4, 2011, p. 7.

[ii] See Daniel Teferra, “Economic Development and Nation Building in Ethiopia,” (Lanham, MD.: University Press of America, Inc. 2005), 15.

[iii] Ed Butler, BBC, “Land grab fears for Ethiopian rural communities,” in, dated December 15, 2010.


[iv] Reuters Interview with Prime Minister Meles Zenawi, November 23, 2010, in, dated 11/24/10.

[v] Harold Marcus, “Doest the Past Have Any Authority in Ethiopia?” in Ethiopia Research Service, February 1992, Paper  No. 5.

[vi] Daniel Teferra, “The Phenomenon of Underdevelopment in Ethiopia,” University of Wisconsin-Madison, Ph.D. Dissertation, 1979, p. 80.

[vii] Ibid., p. 79.

[viii] Ibid., p. 90.

[ix] Public Ownership of Rural Lands Proclamation, No. 31 of 1975, in Negarit Gazeta, 34th year, No. 26, April 1975.

[x] Central Statistical Office, Addis Ababa, Ethiopian Statistical Abstract, 1975 and 1980.

[xi] Central Statistical Office, Addis Ababa, Ethiopian Statistical Abstract, 1975, 1977 and 1980.

[xii] Tamrat Layne, Prime Minister, “Ethiopia’s Transitional Period Economic Policy Draft”,  in Amharinya, Nehassie, 1983 (August, 1991).

[xiii] See Ed Butler, Op.cit.

[xiv] See Selashi Kebede, op.cit., p. 8.

[xv] See Jan S. Hogendorn, Economic Development (New York: Harper & Row, Publishers, Inc., 1987), 56-57, and Loehr & Powelson, The Economics of Development & Distribution (New York: Harcourt Brace Jovanovich, Inc., 1981), 382-383.

[xvi] In Robert C. Tucker, The Marxian Revolutionary Idea (New York: W. W. Norton & Company, Inc. 1969), 113-114.

[xvii] Raymond Penn, “Understanding the Pressures for Land Reform,” in Land Tenure Center, University of Wisconsin-Madison, (1962), Reprint Series No. 7.

[xviii] Angus Maddison, Phases of Capitalist Development (Oxford University Press, 1982).

[xix] From Arthur Young, “Travels in France 1780’s,” in Harrick and Kindleberger, Economic Development (New York: McGraw-Hill Book Company, 1983), 331.