Poverty And Poverty In Ethiopia

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Ethiopia is a predominantly agricultural economy, the agricultural sector providing about 52% of the GDP and 85% of employment to the rural force, generates 90% of the foreign exchange earnings, and it is a major source of raw materials for domestic industries (MOARD, 2014). The sector is largely characterized by subsistence farming. In subsistence agriculture and developing countries like Ethiopia, where smallholder farming dependents the overall national economy. Smallholder farmers work on 96.3 percent of the total cultivated area and produce over 95 percent of the national crop production (CSA 2015). However, smallholder farmers face severe lack of financial resources to purchase

There are many reasons for the economic well suffrage, but the most vulnerable people, a permanent poverty trap people, of course, is that people who are lack of capital like physically and financially resources. Physical resources imply the economic resources, land, buildings, and inputs, from which livelihoods are derived and financial capital implies the capital with which to acquire the physical resources. To many, the root cause of the poverty trap is not the constraint on physical resources but the financial constraints or credit constraints that prohibit the acquisition of those resources to poverty-escaping scale (Calum, 2007). The relationship between food insecurity, hunger, poverty and low productivity in food and crop production is increasingly understood that hunger leads to low productivity which in turn contributes to food insecurity. Reducing the incidence of hunger is essential to increase agricultural productivity and achieve higher rate of economic growth. People suffering from hunger are marginalized within the economy, contributing little to output and still less to demand. Investing in reducing hunger is a moral and economic imperative. So the goal of reducing food insecurity and rising agricultural productivity are interrelated (FAO, 2006).

Therefore, intensification of agricultural land and expansion of technology use must be accompanied by resource use efficiency that improves productivity of factors. Improvements in resource use efficiency hence increase in productivity will reduce encroachment of population to marginal agricultural lands. In turn, this will protect the resource base of the poor against degradation. More importantly, efficient resource use is the basis for achieving universal food security and poverty reduction strategies particularly in the rural areas. It is also crucial for policy makers to have adequate and evidence based policy options to increase efficiency and productivity to improve the livelihoods of the poor.

As Wolday (2003) stated, in Ethiopia, among other things, lack of finance is one of the fundamental problems impeding production, productivity and income of rural and urban households. Since access to institutional finance is very limited, the majority of the poor obtain financial services through informal channels, such as money lenders, 'Eder ', ΄Arata΄, relatives and