Cities as Engines of Growth and Transformation in Ethiopia

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1 Cities as Engines of Growth and Transformation in Ethiopia 1 P a g e

2 Foreword The global trend of urbanization shows that for the first time in history, more people now live in cities than in the rural area. All world population growth for at least the next fifty years will be in cities, and the cities of developing world will accommodate most of this upsurge. As a matter of fact urbanization is fundamental to sustained national economic growth and cities can be considered as engine of economic growth. The population density and economies of scale characteristics of urban centers attract entrepreneurs, facilitate business and investment, and provide markets. Urban growth, in turn, drives rural development by way of remittances and demand for rural product. On the other hand if cities are not well planned and managed, they will be confronted with mammoth challenges, such as: - the environmental challenge of climate change, the demographic challenge of rapid urbanization, and the economic challenges linked to the uncertainty of future economic growth. Hence, the quest for sustainability will be increasingly won or lost in urban areas. With foresight, political will and smart planning and management, urban centers serve as the blueprint and map to a sustainable future. As we all know very well, Ethiopia is a rapidly but newly urbanizing country, facing grave challenges regarding increasing urban poverty, high unemployment rates, and low levels of infrastructure and services. Given the pre-occupation with an agriculture led development policy and strategy, there is a shortage of data on Ethiopian cities and limited research on urban development issues. Nevertheless, the government has recognized both the role that urban economies can play in accelerating growth, as well as the need to address issues of deprivation within urban areas. The government s commitment to urban development is manifested in both plans, which are Plan for Accelerated and Sustainable Development to End Poverty (PASDEP, from 2005 to 2010) and the Growth and Transformation Plan (GTP, from 2010 to 2015). I think, it is, therefore, an opportune time to focus on better understanding of challenges that are faced by urban areas, and to provide insights that may increase the impact that government interventions could have in promoting urban development and growth. Therefore, Ethiopian Civil Service University in collaboration with IHS (Institute for Housing and Urban Development Studies), Erasmus University has organized the 4 th national conference. The theme of this conference implies the role of Ethiopian Cities or Urban Centers in economic growth and poverty alleviation. In the conference, about 20 papers were presented on this conference, which are focusing on areas, such as:-urban development and Linkage; Service delivery; Micro and Small Enterprise and Urban Agriculture. From the 20 papers 11 papers are selected for this book, organized under four parts. Part I: - Urban Development and Linkage, Part II: - Service Delivery, Part III: - Macro and Small Enterprise Part IV: - Urban Agriculture and Urban Services. I hope the book will contribute tremendously on the ongoing debate on the role of urban centers to serve the national growth and poverty reduction agenda. The book has elucidated that factors such as the growth of cities and towns and the shifting of population into urban areas from rural settlements, are an inevitable part of long-term process of economic development. Yet, in Ethiopia, the real contributions of urban development to economic growth and poverty reduction may not be adequately assessed and appreciated. Therefore, the book will shade some lights on the role of Ethiopian urban centers on the economic growth and poverty alleviation. The book embodied the work of many, to whom I would like to express thanks. I thank, of course, each contributor for their inputs and willingness to be engaged in such a collective work. I also extend my appreciation for Samson Kassahun, M.P. Van Dijke and Aloysius Bongwa for editing the book. I thank also the organizers of the conference for their commendable job and the participants for their contributions to the ongoing dialogue of the role of urban centers as engine of growth. Dr. Haile Michael Aberra President of Ethiopian Civil Service University 2 P a g e

3 Chapter 1: Lessons to manage cities as engines of growth from the transformation of Chinese provincial capitals for Ethiopia's regional capitals Meine Pieter van Dijk, Introduction The Chinese economy has grown very fast since 1978 in particular in the big cities in the eastern part of the country, fueled by the Special Economic Zones located closely to these cities. Western provinces have grown more slowly in the past and many workers from these provinces migrated to the eastern provinces sending back a substantial part of their revenues. However, China wants to change this regional imbalance by now stimulating the economic development of the western part of the country. Policies like promoting investments in the west, stressing the availability of cheap labor and space and facilitating loans have been implemented. We will study the role of cities in different Chinese provinces. Does the increased attention for the development of western China mean that China's development is moving west and what are the consequences for China's development model of such a trend? Is this a transition to a more capital and technology intensive economy in the cities in the Eastern provinces? To answer these questions the factors determining the attractiveness of regions and of cities in China will be determined. Migration plays a key role in a China s successful development. However, the economic crisis of 2008 also showed that migration flows can also be reversed and that the eastern provinces tend to go for more capital and skill intensive development with major consequences for migration. Migration issues in China are extremely important since migrants contributed to the high economic growth figures of the country since The Chinese government has a migration policy within China and even promotes migration abroad. Finally, for regional development it is important where the income earned by migrants is being spent. This is in the eastern provinces if the workers move there to find employment, but it will be spent in the western provinces if more economic activities are located there. This development will contribute to a transformation of the Chinese economy to a more capital and technology driven export oriented manufacturing sector in the Eastern part and an important sector of labor intensive in industries producing also for the local market in the western provinces. After analyzing regional inequality a theoretical framework will be provided for the analysis of the role of cities in regional development. It focuses on the factors determining regional growth and the importance of agglomeration economies for urban development. Then we analyze the factors influencing the growth of provincial capital cities, taking foreign direct investment as an indicator of the competitiveness of these cities. At the end of the paper the factors determining the future transformation of China and its consequences for migration will be discussed and some conclusions for Ethiopia will be drawn. Rapid urbanization, but an unequal development Shortly half of China's 1.3 billion population will be living in urban areas and this number is expected to increase rapidly, if only because the authorities take a positive attitude towards migration and argue that the economic growth is higher in the urban than in the rural areas. 1 The current Chinese situation with respect to migration can be summarized as 200 million Chinese people are expected to move to the cities during the next ten years (Van Dijk, 2010). 2 Already 43 percent of China s population lived in cities in 2005 (559 1 Chinese farmers have at the average only half a hectare of land per person at their disposal and often this consists of several plots. 2 Emigration abroad has been promoted by a number of provincial governments. Some Chinese provinces have an active migration policy suggesting people even to go abroad, in particular to Africa and Latin America. It is 3 P a g e

4 million, CSP, 2006). 3 In some provinces this percentage is much higher: city provinces like Shanghai (89%), Beijing (84%) and Tianjin (75%) are leading, while other provinces count more than 70 percent rural population, for example Guizhou, Tibet and Yunnan. The 13 biggest or mega cities count together 114 million inhabitants. About 113 cities have more than one million inhabitants and this number is increasing rapidly. Currently 108 cities are between half and one million inhabitants and 65 between 200,000 and 500,000 inhabitants. However, the big cities are very big. 4 In China most migrant workers come from poorer western provinces. They go to the more developed parts of the country, such as the Pearl and Yangtze River Deltas in the eastern part of the country. It is estimated that in 2009 a total of 230 million migrant workers had left the rural areas, of which 150 million had ended up in the cities. However, due to the crisis an estimated 20 million have returned to their villages jobless before the Chinese New year holiday in late January 2009 (Financial Times, ). The effects of the economic crisis on the Chinese economy were higher unemployment and a need to support the unemployed migrants in the eastern cities. It meant a temporary reversal of migration flows and more political unrest. China recovered very fast from the international financial crisis, despite stagnating Foreign Direct Investments (FDI) in 2008 and 2009 and increasing Chinese investments abroad. However, there are clearly a number of structural weaknesses of China s capital and labour market, which became clear during the recession. 5 It is noteworthy that now there are shortages of skilled labor in eastern provinces and some of the migration flows have reversed again, because unskilled migrant workers were hired for jobs requiring skills in the eastern part, although employers have to pay more to attract these migrants. China has a large number of provinces and can be split in three (west-central-east) or two parts (taking middle and far west together) as will be done in this contribution. Table 1 provides the basic data for three regions. Table 2 provides the names of the provinces and their capital city. Four cities are so-called city provinces. The differences in development level between the provinces are big. China's increasing Gini coefficient is one indicator of regional inequality. It increased from 41.5 in 1995 (World Bank, 2000) to 49.6 in 2006 (quoted in the Financial Times ( ). Also differences in wages, investments and per capita production illustrate the inequality. Furthermore the differences between big (mega) and smaller cities will be analyzed. Because of the economic crisis of 2008/9 economic growth in China declined at the end of Exports decreased rapidly and it is estimated that millions of Chinese workers lost their jobs and many returned to their provinces in the western part of China. Subsequently the Chinese government launched an important stimulus program. However, local consumption has not yet grown fast enough to replace the role of exports. Much of the currently rapidly increasing growth is due to the stimulus package of 500 billion dollar extra (Van Dijk, 2009). However, what has been the effect of the recession on the transformation of the Chinese economy? expected that these Chinese working abroad will send money back to their family members, who were left behind and their departure diminishes the pressure on the land. 3 Urban refers to all people residing in cities and towns (CSP, 2006). 4 In the city province Chongqing the total urban population is not 30 million, but only 45 percent of the total (the urban part of this city state), which is still 12 million people. 5 A weakening of the financial sector took place, because the government stimulus program was financed partially by the banks which were forced to finance development projects of provincial and municipal special purpose vehicles, of which 30 percent is estimated not to be able to serve the debt. 4 P a g e

5 Table 1: The three regions of China data for 2008 Area Population GDP Resident Consumption Level Per capita Million Percent Million Percent Billion Percent Yuan Percent km2 Yuan Northeast and East Coastal part Middle and Near-Reach- West part far-reach-west part Source: calculated based on the provincial data available on the website of China Statistics Bureau, The western provinces are less developed than its eastern provinces. The increasing inequality is a potential source of unrest and the government would like to develop the western provinces. China has shown high annual rates of economic growth since Deng Xiaoping started the economic reforms in 1978 with liberalizing agriculture. However, the income distribution has become very unequal (Fleischer et al., 2010), which can also be noticed from figure 1 comparing the per capita Gross Domestic Product (GDP) in western and eastern provinces. Both areas have grown, but the gap between them has become bigger. Increasing inequality has been noted in particular since the 1990s (Yang, 2002). The reforms continued with stimulating Special Economic Zones (SEZ), located mainly in the south eastern provinces. Typically the per capita GDP in these provinces is now even higher than in the north eastern provinces where the traditional large scale industries were located. 5 P a g e

6 Table 2: The basic information of three areas of China Area Province Capital City East Area Liaoning Shenyang Jilin Changchun Heilongjiang Haerbin Beijing Tianjin Hebei Shijiazhuang Shandong Jinan Shanghai Jiangsu Nanjing Zhejiang Hangzhou Fujian Fuzhou Guangdong Guangzhou Hainan Haikou Middle and Chongqing Near-Reach- Sichuan Chengdu West Area Hubei Wuhan Hunan Changsha Anhui Hefei Jiangxi Nanchang Shanxi Xian Gansu Lanzhou Ningxia Yinchuan Shanxi Taiyuan Henan Zhengzhou Yunnan Kunming Guizhou Guiyang Guangxi Nanning Far-Reach- Inner Mongolia Huhehaote West Area Xinjiang Wulumuqi Tibet Lasa Qinghai Xining The Chinese New Year in 2009 was really the turning point. In the eastern Guangdong province by the end of February 2009 more than 90 percent of migrants had come back to this province meaning three things. It shows determination among migrant workers to move permanently to the east coast, where salaries are higher. Secondly, these workers still seem to be necessary and a large numbers of these migrant workers are still living outside the Chinese social security system (Chang 2008). 6 P a g e

7 Figure 1 6 Per capita Gross Regional Product in Yuan (renminbi) from 2004 until ,000 35,000 30,000 25,000 20,000 15,000 10,000 5, East: GRP p cap Yuan West: GRP p cap Yuan CSP (different years) Migration leads to problems in the city and in the country side. 7 Migrant labour is often misused in the cities, although officially rights of migrants are inviolable. 8 Currently the debate on illegal labor heats up in China, because migrants in the eastern provinces now also come from neighboring countries. The official slogan for the treatment of migrants is "special group, equal treatment", but it would be quite a step forward if these poor people would be given citizen s rights! The average wage of unskilled labour in China is about US$ 7 dollar per day. Plans to deal with the current social exclusion of migrants are developed. Changing the situation of migrants in the big eastern cities require different policies, such as legal adjustments: changing the Hukou residency rules system and recognition of migrant rights. In the past the migrants would just get temporary residence permits. The Guangdong Province subsequently announced plans to safeguard the rights of more than 23 million migrant workers and their families in this province. This population of about 23.3 million temporary workers should be compared with 78.5 million permanent residents in the province. 9 6 Figures 1-3 are the result of research with Paul Labaudiere (EUR), based on CSP (2006). 7 Chinese newspapers describe the problems under heading like: "Fear over countryside childcare" (or: Home alone in country side). Another type of problems is battles over user rights for land migrants have left behind. The China Daily recently wrote about these protests under the title "protests over payouts for seized land". 8 The Shanghai Star (9 December 2004) gives an example of seven migrants from the countryside who had been working under a labor contractor who was in charge of the construction job but fled without paying the workers wages when the project was almost finished. They then attempted to commit suicide by consuming large quantities of drugs in their temporary shed in the city of Shenyang in Northeast China. The solution the Chinese have found for these kinds of problems is that the workers should start registering themselves in the city, which is not very likely for most migrants, who know they are not supposed to leave their rural areas. 9 The floating population in China is defined as people who are not entitled to be registered as permanent residents according to current laws and regulations. It usually implies that travelling is more difficult and these people have no access to services such as housing, education and health in the city where the migrants are working. The urban residency rules were designed after the founding of the People s Republic in 1949 and intended to restrain farmers from entering the cities and have the same status as permanent residents (China Daily, 11 March 2004). 7 P a g e

8 Box 1 Effects of the one child policy Since the end of the seventies China has this one child policy, which means the current population is not 1.5, but only 1.2 billion. It meant available wealth has to be shared with a fewer number of people, but in the medium term we can expect another effect of the one child policy, namely a graying of the population. Already by 2020 it leads to a greying population in China. Out of a 20 million population in Shanghai there are at least three million migrant workers. They represent one third of all workers in Shanghai. This is one of the reasons why the municipal government decided to allow inhabitants who are both only child to have two children. Such a policy would also result in a more even age distribution of the future population, which currently tends to be skewed because of the one child policy. 10 What explains the role of cities as engines of growth? Theories concerning the dynamics of cities We want to understand the contribution of cities to economic development. Recent data for Chinese cities will be used. We will measure the economic contribution of cities by their per capita GDP and its growth rate. However, we also want to explain the competitiveness of cities by doing regression analysis to find the factors contributing to the attractiveness of Chinese cities as measured by the amount of FDI received. Subsequently we want to know what are the differences between cities in the western and the eastern part of China. Are Chinese cities only booming because of cheap labor, or are they gradually developing into high tech economies, able to generate innovative technology to support their competitiveness? We focus in particular on the role of Foreign Direct Investment (FDI) as an indicator of the competitiveness of cities. FDI attracted by a city is a good indicator of the city s competitiveness. Jacobs (1970) argues that the cities have a huge impact on the surrounding areas. The development of cities is considered by her to be an example of what for a country would be 'moving from an import substitution policy to developing an export orientation'. This creates employment and wealth. Also in China cities have a big impact on the neighboring rural areas and will eventually stimulate these areas to direct their 'export' to cities, which originally provided the ideas, technology and necessary inputs to develop these 'export' activities. Hence cities make an important contribution to the development of regions. How can the economic contribution of cities to regional development be explained? Fleischer et al. (2010) summarize the major factor determining economic development, which will also be used in our analysis of the dynamics of capital cities, but which so far tended to favor the eastern provinces. According to Fleischer regional development is the result of physical capital, human capital, infrastructural capital, new technologies and market reforms. Cities must compete in a global economy (Van Dijk, 2006). Urban areas are considered attractive for entrepreneurs due to the presence of agglomeration economies, the sum of urbanization and localization externalities (Acs et al., 2008). Agglomeration refers to the concentration of people or economic activities. Exchanging goods, services and ideas is easier if people and economic activities are located near each other, for example in cities. 11 Urbanization economies are not industry specific. These externalities occur in large urban and, in particular, in metropolitan regions. Urban areas are densely populated and have a diversified population. There is a variety of economic activities and a range of different industries in 10 On a trial basis by the end of 2002 already 770,000 such workers had received an integrated assurance, covering medical expenses, occupational injuries and allowances for retirement paid by their employers (Van Dijk, 2006). 11 Klepper (2010) de-emphasizes the role of agglomeration economies, emphasizing the importance of the location of an outstanding innovative firm in clusters as the most important factor explaining their growth. 8 P a g e

9 cities. 12 Cities are considerable incubators for innovation because of the great diversity of industries and therefore a great source of knowledge (Audretsch and Feldman, 2003). Alongside the positive externalities that arise from urbanization as well as localization, negative externalities can occur in regions characterized by high population density (Duranton and Puga, 2000). 13 Localization economies are beneficial for most economic actors in a certain region (Bosma et al., 2008). Entrepreneurs can derive opportunities from these economies. Knowledge is essential in creating entrepreneurial opportunities for small and new firms (Audretsch and Keilbach, 2005). As opposed to costly research and development (R&D), knowledge spill-overs can be acquired at lower cost. 14 In order to get access to this knowledge one needs geographical proximity, especially when the knowledge concerned is of an implicit nature (or tacit knowledge; Acs and Varga, 2005). 15 Because of knowledge spill-overs cities are the place to be, where everything happens. Knowledge spillovers allow firms to acquire knowledge from other economic players without having to pay for it in a formal market transaction (De Clercq et al., 2007). It is an important externality of agglomeration: information flows more easily locally than over greater distances (Krugman, 1991). This type of knowledge transfer requires face to face interaction. Because firms are operating in the same industry, they have a higher absorption capacity of information concerning this industry, and hence they are better able to understand and use the knowledge obtained. Economies of agglomeration can also occur due to labor pooling. The third externality arising from agglomeration is specialization. According to Marshall (1920), in a district in which there is a large production of the same kind, expensive machinery can be used because of scale advantages (Krugman, 1991). Agglomeration economies are supposed to attract new enterprises to cities and make the ones present more productive. The knowledge economy is often the basis for economic success, and in particular the regional knowledge economy is important, because it is spurring technological progress" (Glaeser et al. 2010). Knowledge is a key factor for driving growth and hence the word is used to characterize the modern economy as the knowledge economy. It is seen as the key to economic growth. Innovation is mostly the result of organizational learning as well as formal research and development (R&D). It always involves investment in developing skills and knowledge and usually in physical assets and marketing effort. According to Porter (1990), innovations can shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. The most typical causes of innovations that shift competitive advantage are new technologies, new or shifting buyer needs, the emergence of a new industry segment, shifting input costs or changes in government regulations. Yang (2002) also emphasizes the role of a sixth variable, Foreign Direct Investment (FDI). As argued in Van Dijk (2010) FDI is a good indicator of global competitiveness. To find out which cities are growing and why we will do a regression analysis taking FDI as an indicator of competitiveness for Chinese cities. A well-developed localized knowledge economy attracts more FDI. Arzeni (1999) emphasizes that many OECD economies are moving toward a knowledge based-economy, meaning that they are more directly based on the production, distribution and use of knowledge and 12 The importance of urban diversity for innovation and economic growth was already observed by Jacobs (1970). She argues that the most important source of knowledge spill-overs is external to the industry in which the firm operates and that diversity fosters cross-fertilization of ideas. 13 Examples of such diseconomies of agglomeration are pollution, congestion or increased wages (Bosma et al., 2008). Furthermore, the crime rate often increases with the size of an urban area (Glaeser and Mare 2001). 14 A typical form of knowledge spill-over is the spin-off firm. Entrepreneurs use knowledge created in incumbent firms, that might otherwise have remained unused or dormant, and use this knowledge to start up a new firm (Audretsch and Thurik 2008). 15 Tacit knowledge refers to more technological, highly contextual, and hardly codified knowledge, which is difficult to articulate through language (Boschma 2005). 9 P a g e

10 information. 16 Raspe (2009: 13) stresses that the existence of knowledge-based inter firm relationships is important for the regional knowledge economy, besides internal knowledge related firm capabilities. The knowledge economy contributes to innovation, which can be measured by reviewing the R&D expenditures of a firm or region (Smith 2005). However, R&D is neither a sufficient nor a necessary condition for innovation. Furthermore, R&D often takes place in larger companies and an indicator could exclude (non R&D based) innovations by small firms (Smith 2005). The number of issued patents is another way to measure innovation, 17 or innovation can be measured by means of questionnaires, although this may provide a subjective perspective. This leads us to focus in our theoretical framework on agglomeration and indicators of the knowledge economy to explain the economic growth of provinces, such as the proportion of highly educated labor (a potential pool for innovation), and the number of patents registered. Urban development in China explained 18 Regional inequality is a potential bomb under China's unity (Chang, 2008). Fleischer et al. (2010) show how regional growth patterns in China depend on regional differences in physical infrastructure, capital and FDI flows. For enterprises to go west factors, such as past investments, current and FDI, the presence and price of labor, the cost of transportation and the speed of developing the internal market are also important. A number of recent developments have important consequences for the location of economic activities in China. The first one concerns the development of FDI (figure 2), which shows that currently a larger part of FDI is currently going to the western provinces in the period % Figure 2 Eastern versus western provinces, share of invested FDI in USD$ from % 60% 40% 20% 0% East: Share of invested FDI (%) West: Share of invested FDI (%) Similar differences can be noted for per capita GDP for all provinces listed in table 3 and for wages in seven selected western and eastern capitals (table 3) A scorecard for the knowledge economy at the national level has been developed by the World Bank. The World Bank developed a scorecard for the knowledge economy (Dahlman and Utz, 2005). 17 Limitations to this approach are that not all innovations are patented. Moreover, they are an indicator for invention and not for innovation (Smith, 2005). 18 Doing an analysis at the city or regional level, or in general below the national level, is not easy, because many people doubt the quality of Chinese data, which are often presented on a certain year almost the on the first day of January of the next year. It is not easy to get reliable figures at the city level. Some figures used below refer to the provincial level in China because they were not available for the regional capitals. 19 These data are available for the 36 main Chinese cities and will be used in the regression analysis. 10 P a g e

11 Table 3 Per capita GDP in all eastern and western provinces in 2008 Eastern provinces Per capita GDP in renminbi Western provinces Beijing 61,876 Anhui Liaoning 31,199 Guangxi Jilin 23,497 Chongqing Heilongjiang 21,723 Hubei Tianjin 54,034 Hunan Hebei 23,164 Jiangxi Hainan 17,087 Sichuan Fujian 30,031 Shanxi Guangdong 37,402 Gansu Jiangsu 39,483 Ningxia Shandong 32,945 Shaanxi Shanghai 75,536 Henan Zhejiang 41,967 Yunnan Guizhou Far-west areas Inner Mongolia Xinjiang Tibet Mean significant differently at Per capita GDP in renminbi 14,465 14,891 17,891 19,840 17,840 14,728 15,368 20,345 12,085 17,784 18,212 19,523 12,547 8,789 32,157 19,727 13,795 17,347 Qinghai 37,461 17,058 Wages currently increase 10 to 15 percent per year in the eastern part of the country, which add again to the existing skew income distribution. Secondly, government programs for the development of the Western part of the country are becoming more and more important and in particular investment promotion policies attracted more enterprises to the western provinces. Per capita GDP is more than twice as high in the eastern than in the western provinces. Differences in average wages in selected eastern and western capitals also illustrate the inequality (table 4). The wages paid in the eastern cities are at the average 1.5 times what is paid in cities in western provinces. The wage differences are an argument for entrepreneurs to go west. However, other factors, such as the presence of a skilled labor force, cost of transportation and the speed of developing the internal market are also important. Table 4 Average annual wages between eastern and western provincial capitals in 2008 Eastern provinces Average wages (yuan) Western provinces Average wages Beijing Wuhan (Hubei) Shanghai Changsa Hunan) Guangzhou Nanning (Guangxi) (Guangdong) Nanjing (Jiangsu) Nanchang (Jiangxi) Hangzhou (Zhejian) Hefei (Anhui) Fuzhou (Fujian) Taiyuan (Shanxi) Tianjin Chongqing Total times more In all respects, except the length of the highways, the eastern provinces are doing better than the western according to table 5. Government expenditures are almost twice as high and investments in the eastern provinces are 8.5 times bigger in 2008 than in the western provinces. This difference is statistically 11 P a g e

12 significant and suggests also substantial government investments are still going to the eastern rather than to the western provinces. Per capita FDI is currently 11.7 times higher in the eastern than in the western provinces. Exports are 139 times higher and even the number of patents is significantly higher in the eastern provinces. Table 5 Indicators of the differences between Eastern and Western provinces in 2008 Variables Eastern provinces Western provinces Statistical significance 1. Government expenditure 2. Total investments 3. FDI 4. Exports 5. Number of graduates 6. Number of patents 7. Length highways (km) 7664 E10 66,710 E10 10,035, ,080 E10 197,620 20,547 54, E E10 856, E10 141, ,293 ANOVA Not significant However, the average growth of urban GDP was 1.1% higher in the two western capitals in table 7 than in the three eastern capitals. This is not because of the differences in per capita FDI (table 5) or total investments (table 4), but may be related to the fact that the western capitals are at average smaller than those of the eastern provinces and government has invested substantially in infrastructure (for example the length of highways exceeds the eastern provinces). Also, the number of graduates in the western provinces is gradually increasing and now almost the same as in the eastern provinces (figure 3). 100% Figure 3 Eastern versus western provinces: Share of number of graduates per 1000 persons, % 60% 40% 20% 0% East: Share of nr. Of graduates (%) West: Share of nr. Of graduates (%) The length of high roads is significantly higher in the western provinces. This is related to the fact that most of the city provinces (Beijing, Shanghai and Tianjin) are located in the eastern part of the country and require fewer high roads, while the western provinces tend to be big. Table 6 Per capita FDI in the Eastern and Western cities of China in 2007 Eastern provincial Per capita FDI Western provincial Per capita FDI capitals capitals Beijing 379 Wuhan (Hubei) 122 Shanghai 1170 Changsa Hunan) 100 Guangzhou (Guangdong) 851 Nanning (Guangxi) 93 Nanjing (Jiangsu) 1734 Nanchang (Jiangxi) 154 Hangzhou (Zhejian) 309 Hefei (Anhui) P a g e

13 Fuzhou (Fujian) 242 Taiyuan (Shanxi) 54 Tianjin 391 Chongqing 76 Total times more 701 Table 6 shows that seven eastern capital cities receive 7.2 times more FDI. Still an increasing number of industries is going west, but what is the impact of these developments in particular on economic growth of the western provinces and cities? The growth rates of per capita GDP are indicative for the changes that have taken place between the eastern and western provinces since 2005 (table 7). The table shows that cities make an important contribution to economic development and that as of 2006 the GDP of cities in the western provinces is growing faster than in the eastern provinces. Table 7 Growth of per capita GDP in eastern and western provinces Year Eastern provinces (%) Western provinces (%) Although cities in the eastern part of the country are bigger in population terms, the western capitals are growing slightly faster in economic terms. Newspapers articles and Chinese bank reports indicate that many industries are already moving west, given the lower wages, the investments made by the government (for example in road infrastructure), the positive government policies and the less strict enforcement of labor and environmental laws. In the western provinces of China, municipalities are happy to attract some investments and not being too strict on labor and environmental conditions. Hence in first instance the more labor intensive, space consuming (given the lease price of land and buildings in the eastern provinces) and polluting industries move west, but given the incentives and the development of the interior market, it may be expected that more will follow. Rapid urbanization is becoming a key driver for socio-economic change in China! 20 Big cities benefit very much from the policies and investments made by the national, provincial or municipal authorities and hence data on that level, for example about the innovative milieu, expenditures on research, provincial level FDI and investments and number of students can be very relevant to analyze urban development. According to table 8 five major Chinese cities with about 5 percent of the total population contributed in 2005 roughly 15 percent of GDP, which implies that the average urban inhabitant in China contributes almost three times more to GDP than the average Chinese. Combining this information with what we know for the agricultural sector, where 741 (57%) million rural Chinese also contribute 15 percent of GDP it can be concluded that the other 500 million non rural Chinese contribute 70 percent, or about two times more GDP than what could be expected on the basis of their number. Chinese people living in mega cities contribute 3 times the average, these living in the 'in between cities' 1.5 times the average, the rural people contribute only a quarter of the average! A lot of the future economic potential of China is probably in the group in-between cities. That impression is confirmed if Chinese mega cities and smaller size cities are compared. 20 We do not discuss the negative impact of economic growth on the expansion of cities and the resulting demand for rural land (Xiangzheng et al., 2009). They found that economic growth of 10 percent results in 3 percent expansion of urban land! 13 P a g e

14 Table 8 summarizes the information on population, contribution to GDP, per capita GDP, growth rates of the urban economies and provides per capita FDI in dollars for five Chinese cities: Beijing, Shanghai, Chongqing, Guangzhou, and Wuhan. Shanghai receives the highest FDI per inhabitant. This is partially because it is the entry point of the dynamic Yangtze River Delta (YRD). Table 8 Data for 5 important Chinese cities in 2005 City Population (in millions 2005 & 2008) Contribution to GDP (%) GDP per cap Yuan Growth rate (%) Beijing (13)* , Shanghai (13.9) , Chongqing (32.57) , Guangzhou 7.51 (7.84) , Wuhan 8.01 (8.33) , Total 5 cities %** n.a. n.a. n.a. China 1.3 billion , Source: CSP (2006) and following years. One dollar equals around 8 Yuan and one euro is about 10 Yuan or RMB. * The definition of the boundaries must have changed **The 4.4% is the share of the population out of the total Chinese population of 1.3 billion. FDI per cap in $ From table 9 some conclusions can be drawn about the role of mega cities in China (counting more than 8 million inhabitants). Mega cities in China received significantly more investments than smaller cities and have a higher GDP; but from the point of view of economic growth mega-cities don t grow as fast anymore and receive less FDI in per capita terms (although both are not statistically significant). It is remarkable that mega cities have a higher number of R&D workers and count more registered patents (both significant at 10%). The analysis shows that after a certain size of a city economic growth slows down, probably because of environmental and governance issues and that is why these mega cities become less attractive for FDI. Table 9 Comparison between all mega and smaller cities in China Variable Mega cities >8 m. Smaller cities ANOVA N=13 N=23 Significance % GDP bil. Yuan 360 (13) 182 (23).067 at 10% GDP growth % 13.3 (11) 13.8 (12).565 not sign. FDI bil. Dollar 2,806 (11) 4,220 (12).654 not sign Total investment by 150,892 (13) 75,708 (23).005 at 10% Number R&D staff 12,068 (11) 4,275 (11).087 at 10% Number of patents 10,211 (13) 4567 (23).069 at 10% Source: CSP (2006) provides data on GDP, total investment & number of patents for another 13 cities. Table 10 China: Urban GDP as dependent variable, including Hong Kong in 2005 Dependant variable Unstandardized Statistically significant Other indicators Coefficient at 0.5% Constant Not significant FDI N=23 Total investments R square=0.963 Infrastructure investments Durbin Watson = It is not difficult to find for Shanghai population a figure of 20 million inhabitants. Much depends where the borders of the city are drawn and whether registered or actual population figures are used. We have used the figure for registered residents. 14 P a g e

15 How can the economic growth of Chinese cities be explained? The regression analysis based on figures for the biggest 23 Chinese cities shows that the level of urban GDP can be explained by three of the variables mentioned by Fleischer et al. ( 2010): FDI, total investments and infrastructure investments (table 10), but multi-collinearity is just too high. For that reason we selected FDI as the dependent variable and provide the results in table 11 and 12. A problem for the regressions was whether to include Hong Kong, given its specific history. 22 The results show that the level of FDI is mainly explained by the investments made by the authorities in that particular city. FDI is also positively related to the level of exports. Government investments reflect the national and local policy priorities and the importance of FDI is an indication of the path dependency of success: if a city has been successful in the past in attracting government investments it continues to attract more investments than other cities. What was the role of the knowledge economy in these cities? No indicator of innovativeness (R&D expenditures or personnel, number of graduates, or patents per province) was significant in the regression equations using 2005 data suggesting most investments still go to China for the cheap labor. It is disappointing that no indicator of the knowledge economy would be significant, given the efforts of the Chinese authorities to promote innovation by spending more on research and higher education. The conclusion is that at that stage of development of cities in China (in 2005) cities are not yet chosen as a destination for FDI because of their innovative capacity. It doesn t mean that China is not making a lot of effort to develop its innovative capacity, but the results will only be visible later on. Table 11 China: Urban competitiveness as dependent variable, including HK, 2005 data Explanatory variable Unstandardized Statistically significant Other indicators Coefficient at 0.5% Constant Not significant N=23 Total investments R square = Exports Durbin Watson = Knowledge economy Not significant Source: data from CSP (2006). Using more recent data concerning 2008 and excluding Hong Kong, the picture changes indeed concerning the role of the knowledge economy (table 11). Table 12 Urban competitiveness (FDI) explained without Hong Kong using 2008 data Independent variables Unstandardized Statistically significant Other indicators Coefficient at 0.5% Constant Not significant N=36 Exports and imports R square = City's per capita production Durbin Watson = Private Savings VIF 7.065, tolerance Knowledge econ.: enrollment higher education Source: Chinese Statistical yearbooks on the web. The results are partially similar to a first attempt using 2005 data but this time one indicator of the knowledge economy is significant, while investments could not be included because of VIF values. For that reason we included private savings, which also have a critical VIF value, but can be considered a proxy for investments in a communist system. 22 We estimated figures for infrastructure investments for a limited number of cities. Four missing values were calculated using the percentage of total investments for the majority of the cities where data were available. 15 P a g e

16 The transformation of the Chinese economy The combined effects of more capital and technology intensive development in the eastern part of the country and the greater use of more expensive skilled labour means that the east is following a different development path, to some extent triggered off by the last economic crisis. This trend is reinforced because most of the mega-cities are also in the eastern part of China and suffer from diseconomies of urbanization, such as for example congestion in Beijing where 700,000 new cars have hit the road in As expected from our theoretical framework, capital, labour, indicators of the knowledge economy were all statistically significant for explaining per capita urban GDP and FDI. However, regression analysis based on available investment figures is misleading, because the three components of total investments: government, foreign and local enterprises investments are highly correlated. Figure 4 shows that the share in total investment of the western provinces is gradually increasing, which is a positive for diminishing the existing inequality. Secondly government policies are important, but their effects are also hard to measure, because different provinces may give different incentives to private enterprises willing to invest there. The general positive effects of a higher regional and urban GDP growth were clear from table 7. One indicator of the knowledge economy proved relevant when it turned out that the number of students enrolled in higher education contributed significantly to urban FDI in Agglomeration played a role and was reinforced by increased government and private Chinese investments, but even more FDI is going west, although the latter seems to be less important for the development of the western than for the development of the eastern provinces. 16 P a g e

17 Figure 4 100% 80% 60% East v West: Share of total investments in fixed assets (%); % 20% 0% West: Share of total investments infixed assets (%) East: Share of total investments infixed assets (%) In the meanwhile the Chinese economy recovered more quickly than expected from the 2008 global financial crisis and now we see that urban private spending on real estate and the stock market has increased substantially and may lead to bubbles. Mega cities in the east see their economic growth leveling off, since they are facing congestion, environmental and governance issues. There are shortages of skilled labor in eastern cities, which will lead to higher investment in labor-saving technologies. China is one of the few countries that actually wants to accelerate urbanization and hence encourages migration and emigration! It is actively promoting migration since it considers cities have more potential than China s rural areas. A decline of the Chinese export-oriented development model is also due because of the development of the medium and smaller size cities in western China, which will generate more local demand. Given the policies announced in the last plan and the importance of government investment for urban development in the west, it is expected that fewer migrants will go from the western part of the country to the cities in the eastern part, which are going for more capital intensive activities which require more skilled labor. At the same time China may develop its internal market and focus less on export. This can be triggered off by a revaluation of the currency, a round of wage increases in eastern China, which will partially erode China's current competitive advantage. If Chinese workers earn more they will spend it mainly on local products. Local consumption is enhanced if migrants remain in their respective provinces, where they will be more inclined to invest, while in the eastern cities the migrants would send an important part of their income to their relatives in their home provinces, but also spend money locally and on imported goods. What Ethiopia can learn from China The Chinese government actively tries to promote development in the western part of the country. The recently launched 12 th Five year development plan intends to promote regional development and to create a more equal income distribution in China. The strategy comes from the national level and needs to be elaborated at the provincial level (see table 13). 17 P a g e

18 Table 13 Regional development strategy in 12 th Five year development plan Region Strategy Focused policies Western Northeastern Middle National western development strategy Rejuvenation strategy given challenges of heavy industry in region National Central Region Development Strategy Special policy support Infrastructure development Protection of environment Development of science and technology Development of industries with unique character Development of areas where minorities live Establishment of modern industry system Transition activities for areas with exhausted resources Improvement of investment environment Development of competitive industries Establishment of modern industry system Establishing comprehensive national transport hub Eastern National leading strategy Competition & cooperation in the world economy Transformation pattern of economic development Adjustment of economic structure Encouragement of independent innovation The New 12 th Five year plan, covering the period suggests that urbanization must be accelerated. Until recently migration was officially discouraged. However, it is expected that economic growth generated by migration to cities will lead to higher economic growth, which will also solve a number of other problems China is facing such as providing social security and better pensions to its workers. According to the plan rural-urban integration must be hastened and the plan suggests granting citizenship rights to migrants, which would provide them the basic entitlements (such as the right to housing, health care and education for their child), which are currently missing under the registration (Hukou) system for migrants and would mean a reversal of the policies of the past. Another lesson for Ethiopia are the factors that were significant in our analysis of success: the importance of SEZ, of the private sector and of providing incentives to enterprises: cheap labor, space and loans and a positive attitude to FDI. For short, allowing cities and regions to compete with each other for investments and formulate an active and more positive policy towards rural-urban linkages (Van Dijk, 2008) and migration and the urban informal sector. National and provincial government provides incentives to labor and space intensive industries in the western provinces. More space is available and provided at more favorable conditions than in the eastern cities. Similarly more labor is available and substantially cheaper. The fact that these workers do not have to migrate means that their income is spent locally and contributes to development of the less developed provinces. Labor intensive technologies are available and even in the eastern part of the country usually the core technology may be up to international standards, but activities around it are carried out in a relatively labor intensive way. Conclusions We found that growth is accelerating in the western provinces and somewhat declining in the eastern provinces of China, in particular in the mega cities. In the development of the western provinces and their capitals agglomeration economies play a role like they played a role in the development of the eastern provincial capitals. Investments are playing an important role, but it is necessary to distinguish between government investments, and investments by enterprises and foreigners, where the government usually takes the lead. Development of the western provinces also means the development of the domestic market and a different development model, namely less dependent on the world economy. If workers come from 18 P a g e

19 the region they will also spend more money in that region, contributing to the economic growth of the western provinces (Chang, 2008). Increasing domestic demand would make China less dependent on exports. An important part of the investments in the eastern provinces is still going into construction and a more capital intensive development of the industrial sector. However, labor (its lower price and the abundance of low skilled workers in the western provinces) and to some extent innovation, do play a role in regional development in the west and cities are a catalyst in this upsurge in the western part of China, with slightly higher rates of growth recently than those in the eastern part of the country. The current model of bi-polar development, with capital intensive development in the eastern and more labor intensive activities in the western provinces) has important consequences for the flows of migrants and the future of China as an exporting nation. Recently migration is considered a positive phenomenon, despite all the social problems associated with it, such as the reservation, or Hukou system, which makes migrants second class citizens in cities with no rights to government housing, health care or education for their children, which has given rise to the increased number of informal education and training institutes. 23 After the positive effects of the stimulus packages China needed to deal with the consequences of high economic growth (13% in 2010; NRC, ) and the resulting inflation (4.6% same source). Can this development be spread equally? The enterprises in the developed eastern provinces have to choose between paying higher salaries and facing strikes, or moving to cities in western provinces, where the agglomeration economies are not yet the same, but many incentives are provided for labor intensive, space intensive and polluting industries. The pattern is changing because some of the eastern provinces have used the 2008 recession to change to a different development model of more capital and skill intensive technologies. The development of the western part of China is not as quick yet as the government had hoped. However, the lower wages and the incentives provided to investors do convince more and more enterprises to move to the west. Cities which are competitive receive more of these firms. Enrollment of students in higher education is also higher in these cities, implying that the knowledge economy is starting to play a more important role. However, the number of social problems is also increasing and the question is whether the Chinese government can continue to control all these developments. The developments since 2000 show that China is becoming more and more like western economies. It suffered from the global economic crisis, it faces demand for higher wages in the eastern provinces and its internal market is starting to become more important, meaning that the export model may no longer be sustainable. Guo and N Diaye (2009) expressed their doubt that China s export model could survive the economic crisis. The government had to increase its expenditures because of the stimulus program and even more expenditures will be needed in the near future for social security and to stop the deterioration of the environment. All these factors have a negative impact on China s export growth model and will contribute to the development of the internal market with its consequences for migration. In fact increasing local household consumption would probably be a more sustainable option for China s economic growth than continuing its efforts to expand its exports. However, such a development would require a revaluation of the renminbi, which is politically very sensitive. Policies that contribute to the development of backward regions in China may also help the region states in Ethiopia. We certainly learned about the important roles cities have played in this. The policies concern regional development policies, migration policies and linking rural-urban development by promoting a dynamic private formal and informal sector. Regional capitals can provide the infrastructure and services necessary and can boom if the productivity of agriculture can be increased. In Ethiopia that means focusing 23 Mayors of major Chinese cities are aware that they need to change the current system. The China Daily ( ) Mayors Promise to Help Their Residents carried a story about the two major Chinese cities, Beijing and Shanghai, which revealed the circumstances under which many migrants and small entrepreneurs live. 19 P a g e

20 on dynamic sector like tourism, flower and coffee growing, trying at the same time to increase the local value added (Van Dijk and Trienekens eds, 2012). References Acs, Z. J, Bosma, N. and Sternberg, R. (2008) The Entrepreneurial Advantage of World Cities Evidence from Global Entrepreneurship Monitor Data, Jena Economic Research Papers, 2, pp Acs, Z. J. and Varga, A. (2005) Entrepreneurship, agglomeration and technological change. Small Business Economics, 24, pp Arzeni, S. (1999) Entrepreneurship and job creation. OECD Observer, January, pp Audretsch D. B. and Feldman M. P. (2003) Knowledge Spill-overs and the Geography of Innovation, Henderson, V. and Thisse, J. F. (eds) Handbook of Regional and Urban Economics, 4, pp Audretsch, D. B. and Keilbach M. (2005) The Knowledge Spill-over Theory of Entrepreneurship and Economic Growth, Vinig, T. G. & Van der Voort, R. (eds) The Emergence of Entrepreneurial Economics (Amsterdam: Elsevier) pp Audretsch, D. B. and Thurik A. R. (2008) Globalization, entrepreneurship and the strategic management of regions (Rotterdam: Erasmus University and EIM/Panteia). Boschma, R. A. (2005) Proximity and innovation. A critical assessment, Regional Studies, 39, no. 1, pp Bosma, N. S., Van Stel, A. J. and Suddle, K. (2008) The Geography of New Firm Formation: Evidence from Independent Start-ups and New Subsidiaries in the Netherlands, International Entrepreneurship and Management Journal, 4, pp Chang, L.T. (2008) Factory girls, Voices from the heart of modern China. London: Picador. CSP (2006) China statistical yearbook 2006, Beijing China Statistical Press, also on the web for more recent issues. Dahlman, C. and Utz, A. (2005) India and the knowledge economy. Washington: World Bank. De Clercq, D., Hessels S. J. A. and Van Stel, A. J. (2007) New Ventures' Export Orientation: Outcome and Source of Knowledge Spill-overs. Zoetermeer: EIM. Dijk, M.P. van (2006) Managing cities in developing countries, the theory and practice of urban management. Cheltenham: Edward Elgar. Dijk, M.P. van (2008) Urban rural dynamics: a comparative study between Ethiopia and Tanzania In: Van Dijk and Fransen (eds, 2008), pp Dijk, M.P. van and J. Fransen (eds, 2008) Managing Ethiopian cities in an era of rapid urbanization. Delft: Eburon, 249 pages. Dijk, M.P. van (2010) The contribution of cities to economic development, An explanation based on Chinese and Indian cities. Saarbrucken: Lap. Dijk, M.P. van and J. Trienekens (eds., 2012): Global value chains linking local producers from developing countries to international markets, Theoretical perspectives and empirical cases. Amsterdam: University Press, 276 pages. Duranton, G. and Puga, D. (2000) Diversity and specialization in cities: Why, where and when does it matter? Urban Studies, 37 no. 3, pp Fleischer, B., Haizheng Li and M. Q. Zhao (2010) Human capital, economic growth and regional inequality in China. In: Journal of development economics, 94, pp Glaeser, E L., W.R. Kerr and G.A.M. Ponzetto (2010) Clusters of entrepreneurship Journal or Urban Economics 67, pp Guo, K. and P. N Diaye (2009) Is China s Export-Oriented Growth Sustainable? Washington: IMF Working Paper No. 09/172. Jacobs, J. (1970) The economy of cities. New York: Vintage. Krugman, P. (1991) Increasing Returns and Economic Geography, Journal of Political Economy, 99, pp P a g e

21 Marshall, A. 1920, Principles of Economics, London: MacMillan. Porter, M.E. (1990): The competitive Advantage of Nations, London: Collier MacMillan. Raspe, O. (2009) The regional knowledge economy, A multilevel perspective on firm performances and localized knowledge externalities (Utrecht: University). Smith, K. ( 2005) Measuring innovation. In: Fagerberg, J, Mowery, D & Nelson, R (eds) The Oxford Handbook of Innovation (Oxford: University Press), pp World Bank (2000) World development report, Entering the 21 st century. New York: Oxford University Press. Xiangzheng, D., J. Huang, S. Rozelle and E. Uchida (2009) Economic growth and the expansion of urban land in China. In: Urban studies 47 (4) pp Yang, D.T. (2002) What has caused regional inequality in China? China Economic Review, 13, pp P a g e

22 Part I Urban Development and linkage Chapter 2: Developers Greed or an Institutional Issue? Frew Mengistu and Mine Pitere Vand Dijk Introduction Real estate development is the process of conversion of land (development or redevelopment) from one use to another. It is the art of building real estate value by managing development risk. Value is realized by providing usable space with associated services needed so that consumers can enjoy the intended benefit of the built space. A developer can be defined as the person or firm that is actively involved in the development process and take the risks and receives the rewards of development. As far as semantics is concerned, historically the term real estate has its origin in the American tradition where immigrants discovered the new territory and grabbed land. In Britain the phrase land and landed property was used where all land was crown land and later transferred to private property of individual citizens through leasing. The Ethiopian Civil Code of 1960, which is basically a French origin, in its Art refers such landed properties as immovables. It includes both land and buildings. Based on the neo classical economics aphorism the ethical structure of a developer is built upon utility maximizing actor concerned with profits and wealth. The inevitable corollary of such ethical structure is that developers as a group have often suffered from negative public image. The stereotype greedy hustlers is usually attached to the word developers. The image is often undeserved or [partly undeserved] - as when developers are identified with bringing unwanted changes to open spaces of the neighborhood or when their actions led to relocation of some of the poor communities living in prime urban lands. However, it is deserved - as when developers have built shoddy products, have been insensitive to community needs, or have imposed costs on the community for which they should have taken responsibility (Peiser and Schwanke 1992), or abuse the incentives they have been granted with the aim of improving welfare of inhabitants. Following the crackdown on mal practicing real estate developers in the months of October and November 2010 by the City Administration of Addis Ababa, there is a widely felt anxiety that the once thriving real estate industry might be on the retreat. What circumstances led to the crackdown? Was it greed in the part of the real estate developers or problems in the institutional framework that triggered the crackdown? What type of new legality can we build up to resolve the tension between informal practices and formal institutions pertaining to real estate development? This research provides explanation from the institutional perspective by analysing the institutional environment under which real estate developers were operating and how they behaved under such environment. Triangulation of data sources, collection and analysis methods has been applied to give a clear and fair picture. Survey data collected by the researchers, City Administration, and an independent consultant, public media reports, and interviews, and key informants is utilized. The research makes use of insights from the new institutional economics and behavioural economics. Background There are many factors for the historical gaining importance of real estate development as economic activity. The tremendous shift from an industrial economy to a service economy has exerted high demand for office space and an explosion in retail space (Poter 1989). Demographic shifts in the population in the case of developing countries and their location preferences on where to work and where to live is also another factor. Significant improvement in the technology and product led also to flourishing of complex of new buildings. 22 P a g e

23 When a local economy is at its take off or reviving stage and the necessary local infrastructure and physical structures which provide space are non-existent or have deteriorated for long, economic growth needs to be accompanied by intensive maintenance and expansion of infrastructure and building structures. Provision of roads and other infrastructure increases land values in areas adjoining the roads which in turn stimulate the construction of better buildings that match the increase in land value. This will enable a locality to improve the basic conditions for the economic activities to stay competitive (Helmsing 2001). Real estate development as a business form has commenced in Ethiopia since the mid-1990s. In the Imperial period when land was privately owned, there were land lords who build rentable units or tenement units and in the rarest cases multi storey blocks of offices and apartments in the big cities such as Addis Ababa. The majority of these rentable units were of 1-2 habitable rooms often with shared external cooking facilities and usually common pit latrines. Such land lord developed units were most often built without planning approval and building permits. However one of the merits of such mode of development was their easy accessibility to those potential tenants with affordable price. These petty providers 24 were the main suppliers of rentable units in addition to housing provision by owner occupiers (those who build for own uses). Under the socialist military government all land and rental units were nationalized and the relationship between lessor and lessee had been abolished since the 7 th of August No person, family or organization was allowed to obtain income from urban land or house rent. Users had been limited only to usufruct rights. By this the real estate development as economic activity was aborted. This triggered a shift to a new set of actors and systems of delivery. The new actors become user themselves either individually or in a form of cooperatives. The other main actor was the government not only as provider of public infrastructure and regulator but also as supplier of built up spaces. This period specifically after the mideighties was also associated with burgeoning of informal and squatter settlements. With the overthrow of the Derg by the EPRDF forces in May 1991, free market economy was proclaimed as the economic policy of the nation. The new Constitution (1995), in its article 40/3 stated that land as one of the natural resources is the common property of the nations, nationalities and peoples of Ethiopia and the right to ownership of land as well as natural resources is exclusively vested in the state and the peoples of Ethiopia. Land should not be subject to sale or other means of exchange.though land still remained state property new actors including owner-occupiers, petty providers and real estate developers become the main actors. Ever since the Investment Proclamation No. 37/1996 was issued some investors showed interest in real estate development and started operations in the residential subsector. As a consequence of these policy changes the real estate sector has become the fastest growing segments of the Ethiopian economy. The Ethiopian Investment Agency had issued licenses to 160 real estate developers up to 2009 to operate throughout the country. The Real estate and construction sector grew by an average of 14.1 and 10.4 per cent per year respectively in the past five years to 2008/09. This is above the average annual growth rate of real GDP during this period which is 11.4 per cent. According to the review by a consultant group Access Capital; had it not been for the expansion of this sector and the closely affiliated construction sector, Ethiopia would not have registered double-digit economic growth in the past five years (Access Capital, May 2010). 24 Petty providers are not as such professional real estate developers and as a category of developers they are not involved in area based development. They are private individuals or legal individuals such as companies who build separately a flat or an office building individually and mainly for rental purposes. They might occupy part of the floor space for their own use. 25 The date the proclamation for nationalizing urban land and extra houses was issued. 23 P a g e

24 Literature Review Real estate development as economic activity is linked with specialization in the sense that a person develops land and property for sale or rent. Like any other economic activity real estate development deals on satisfying wants with the application of scarce resources. Both demand and supply factors of real estate products are highly influenced by the policy and institutional (laws, rules and regulations) framework and the way the construction industry is organized. The arrangements through which policy and institutional frameworks are organized, the interactions between formal and informal institutions and how actors are influenced under these interactions in pursuing their goals is schematically shown here under in Figure 1.1. Figure 1.1: Schemata of Institutions-organizations-actors interaction Polity Policy Institutional functions Regulatory organizations Incentives/constraints Actors (After Lindfield M., 1998) Market Non-Market Polity refers to society as a political system including the form of government. The political system/polity determines policy since it also determines the allocation of resources and provision of services between competing interests. It is polity that defines and enforces property rights. It is polity that specifies and enforces the formal rules. Polities shape economic performance because they define and enforce the economic rules of the game (North 1995). Policy is the formulation and expression of intent. It is generated through political processes in the context of distinct historical legacies and geopolitical circumstances. A given set of rules promoting an objective is termed by Lindfield (1998) as an institutional function. To North institutions are the rules of the game in a society or, more fundamentally, the humanly devised constraints that shape human interactions (1990). Institutions are derived from policy and cast in mould after the political goals which they are supposed to serve. Therefore institutions as reflections of the power and interests within society are never neutral. An institutional function is entrusted to a regulatory organization/s for its enforcement. Institutions play their role by forbidding, encouraging group and individual actors behavior through instruments of constraints and incentives respectively. An incentive is simply a means of urging people to do more of a good thing and less of a bad thing (Levitt and Dubner 2009). Constraints restrain actors not to behave in certain way in acquiring their goals. Actors living and working environment are among the biggest assets they exercise their decisions on. Actors respond to incentives in their decision making i.e. incentives where to use such productive assets - where they receive the highest return. 24 P a g e

25 In market economy, markets coordinate such movement of productive assets and prices coordinate market activity 26. Markets in order to generate efficiency, it is necessary to have a legal framework that constrains the behavior of consumers and firms. Nevertheless, more often than not, the legal system may fail to place the appropriate constraints on market behavior or pass laws that might overtime be discovered as suboptimal. The lack of capacity to enforce the laws might lead also market actors to break the law without detection, or manipulate the legal system to avoid punishment when caught breaking the law (Clements 2011). The interaction between actors (including actors organizations) and institutions is two-way, represented by double arrows in Figure 1.1. As rules influence actors by constraining or promoting their behavior so do actors concerted actions might result in institutional change. According to Prochaska et al (1992), individuals behavior change in stages. These stages include: pre contemplation, contemplation, preparation for action, action, and maintenance of the new behavior. This maintained behavior in a certain activity constitutes the behavior of interest. In the processes when various individual/organizational actors have converging common goals for an action they tend to cooperate, whereas when they possess different and diverging goals driven by vested interests they tend to compete. Coming to institutional interaction, Helmke and Levitsky (2003) based on the works of Lauth have noted a typology of interactions between formal and informal institutions. Their typology is based on two dimensions: the effectiveness of the relevant formal institutions and the degree of compatibility between actors goals (what they seek to accomplish through a particular informal institution) and their expectations about likely outcomes generated by formal institutions. In the context of effective formal institutions and in which actors pursue compatible goals, informal institutions tend to be complementary. Where as in the same context but when actors pursue conflicting goals informal institutions tend to be accommodative. Competing informal institutions exist in the context of weak or ineffective formal institutions. They structure actors incentives in ways that are incompatible with the formal rules. To follow one rule they are forced to violate another. Substitutive informal institutions are created or employed by actors seeking to achieve outcomes that formal institutions were expected to deliver but have failed. Figure 1.2 illustrates the typology of formal-informal institutional interfaces. Figure 1.2: A Typology of formal - Informal Institutional Interface (after Helmke and Effective Formal Institutions Ineffective Formal Institutions Compatible Goals Complementary Substitutive Conflicting Goals Accommodating Competing Source: Levitsky 2003) Greed as an aspect of actors behavior has been defined by many scholars in various ways. Some definitions seem more sentimental, some on grounds of religious creed and morality (greed as one of the seven sins) while others are based on psychoanalysis and on the various strands of behavioral economics. Recently the word greed has been widely used in criticisms against the activities of managers of lending organizations in the US subprime mortgage crisis in Clements (2011) defines greed as selfinterest at the expense of total value i.e. total surplus or aggregate welfare. It is not merely a desire for wealth accumulation but self-interest with disregard for others welfare. Clements make a sharp distinction between the self-interest (as used by Smith 1759) and greed or selfishness. Greed in contrast to self-interest is inefficient and can destroy value. Winarick (2010) discusses the reciprocal relation between greed and envy against who has more money, power and control than one has. Korf after commenting on literature on civil wars which sees greed and grievance as antagonistic explains both as causally linked and reinforcing 26 Not all resource allocation is done through markets. Barzel (1997) discusses two areas of non-market allocation: allocation by voting in market settings such as the cases of condominium to make an array of operating decisions and shareholder corporations to elect mostly officers; and allocation by voluntary charitable behaviour e.g. the case of blood donation. Bequest decisions are also examples of non-market transactions. 25 P a g e

26 to each other. Grievance creates the pre-condition for violence by heightening the motivation for people to fight for justice (2005). In theory, better laws and better enforcement could help to preclude these inefficiencies. Greed could also be curbed through the creation of social norms. As Clements (2011) noted such a norm can be morally or ethically based or customary. Another point of discussion is institutional efficiency. In practical terms efficiency is responsiveness to rapid increase in demand, responding also to the needs of those who don t have easy access to the market (low income and the poor), and responsiveness to rapid change in urban form, to the ability to be adaptive to the dynamic development taking place in urban centres or the maximum productive use (World Bank). With allocation of land as a resource, efficiency can be viewed from the dual function of land: land as social function (expressing the relation between state and society), and land as an economic function (the right to use it traded as a commodity expressing economic relation between people). Efficiency from land as commodity perspective means enough land supply to serve sub market needs, low transaction cost, adequate and timely provision of infrastructure, and ease of market entry to developers. Efficiency from the social function approach to land does include in addition to some of the aspects formerly mentioned also safeguarding of people from negative environmental changes, minimal constraints of plot occupancy, or incentives to provide plots for the poor. The effectiveness of an institution is evaluated in comparing the outcomes with the goals of the institution. When the objectives/goals of an institution are not attained and the derived incentives promote other outcomes which do not align to the objectives/goals of the institution, then we are talking about the ineffectiveness of institutions. Basically the outcomes for any public institution are universal such as welfare improvement. For example with respect to real estate market output parameters and outcomes can be: accessibility and affordability of housing, better access to land, changes in the number of housing stock, serving the underserved i.e. contribution to alleviate the housing problem of the low income and the poor, and contribution to welfare improvement. Such factors constitute success factors for institutions. Context: Policy and Institutional Framework The Urban Development Policy which was approved by the Council of Ministers (March 2005) states that the main focus of the government in housing development is on expansion of housing estates. Such housing schemes are envisaged to be cost and material saving condominium buildings targeted to be sold to low income groups of the society through lower advance payment, long term loan and lower interest rate. Among the principles of the policy for land delivery, it is stated that the delivery of urban land need to be implemented in a sustainable and efficient way by giving priority to accelerating development and stabilizing prices. The policy also pledges to facilitate mechanism by which low income groups will be allocated adequate land at reasonable cost. Among the core urban development activities identified by the policy to accelerate urban development is real estate development. The policy envisages that the government will have major role in construction of the housing estates. Investors will also have significant role in the construction of residential and offices to middle and high income groups. Those private investors engaged in real estate development for rent for low income group should get support by way of provision of infrastructure, design and construction materials. According to Council of Ministers Regulation on Investment Incentives and Investment Areas Reserved for Domestic Investors (Regulation No. 84/2003), eligible investors were to benefit from the following set of incentives: Five to seven years exemption from income tax for investors engaged in manufacturing and agroindustry or based on directives from the Federal Investment Board, if they export 50% of their product or supply 75 % of their production to an exporter as input; Two years income tax exemption for investors who export less than 50% of their products or supplies only for domestic market, expansion or upgrading of an existing enterprise and increase in value of their production by 25%; To import duty free capital goods and construction materials necessary for the establishment of a new enterprise or for the expansion or upgrading of an existing enterprise; and duty free 26 P a g e

27 importation of various spare parts whose value doesn t exceed 15% of the total value of the capital goods. However real estate developers are not eligible for customs duty exemption. Instead real estate developers are supposed to benefit from incentives in the form of: simplified and transparent investment and business licensing procedures by Ethiopian Investment Agency (EIA) or the Addis Ababa City Government Investment Agency; communal grounds, rights of ways, etc. without fixed upper limits being exempted from lease payments, and the right to be free from lease payment for 50 meter square plot (on which only land tax was payable). The Provisional City Government of Addis Ababa in its Regulation No. 20/2005 to provide land for real estate rescinded the later incentive and included provisions to limit green areas and road space. In its preamble the regulation included reasons for discontinuing the incentives to the real estate sector on grounds of several developers being already involved in the sector. The share of villa and condominium type was limited to be of 30% and 70% respectively. The advance payment of a real estate project had been also established to be 20% of the total lease payment. The regulation also stated that the incorporation of expansion area for a real estate project outside the reserved area would be treated with the highest auction price in the surrounding. There were also provisions for determining price of land for plot sizes which range from meter squares. Land size for leasing for first time request by an investor to develop was limited to be meter squares. An investor would request additional expansion of land only after completing 75 % of the previous project. The Addis Ababa City Administration Directive on Conditions for Land Request and Authorization Services defines real estate developer as a developer who builds houses which can accommodate 50 and more households through rental or transfer on sale. The directive among others, also limits the size of land to be requested by a developer not to exceed 20 hectares if it is located in expansion zone of the city and 5 hectares in developed areas. For those developers requesting land in excess of such amount it has to be decided by the Board. Only condominium type housing is allowed in the developed town proper, however if the local development plan based on the master plan provisions allows for villa type housing then the later component cannot exceed more than 30%. Real estate projects to be constructed in area exceeding 5 hectares need at least to be phased into two. According to the directive a developer can request individual land holding/condominium ownership certificate only for the phase he has completed. The detail action plan submitted by the developer need to be reviewed according to the provision of the master plan and decision of the investment board. Survey Results and Analysis Actors Identity Following Ostrom (1990) actors attributes/characteristics include: information capabilities, selection criteria on their decisions, preferences, and resources. According to our survey results (N=14) except the pioneer real estate developer Ayat Company which was established in 1996, most of the real estate developers were established after The business organizational form of most developers is private limited company (57%) followed by share company (29%). The registered capital of the enterprises varies from 8.1 million Eth. Birr 27 the smallest, to 260 million Eth. Birr the biggest; with the majority (43%) of them ranging from 8 to 50 million Eth. Birr. 57% of the real estate developers have sister companies to work with. This sister companies are involved in diversified business such as general businesses, fitness 27 Birr is the Ethiopian Currency. Its exchange rate was devalued by 58% from Birr 2.07/USD to 5 Birr/USD in 1993 and left to be decided by market (biweekly foreign exchange auction market). Following the successive devaluation measures the rates of the Birr against USD were 9.50/USD (2008), 13.75/USD (Aug.31 st 2010), 16.35/USD (Sept. 1 st 2010), and 16.96/USD (Feb. 2011). 27 P a g e

28 centre, importers, hotelier, furniture manufacturers, building materials suppliers, machinery rental, and construction contracting. The majority (43%) of the sister companies are construction companies or contractors. It is not unusual here in Addis for a contractor or an architectural and engineering consulting firm to co-own and operate real estate projects. These sister companies serve also as a source of loan finance for the construction of the real estate projects. 57 % of the respondent real estate developers are companies specialized in large scale area-based residential real estate development. Regarding information sources that the real estate developers make use of in reaching investment decisions, none of them depend on market information from real estate agents, rather they depend on their own intuition and analysis (35.7%) and another 35.7% of total respondents use own intuition and analysis in combination with feasibility studies of real estate consultants, investment advisory groups, potential and project profile studies by the Addis Ababa Investment Office, and conversation with other real estate developers. The remaining group (28.8%) use studies by real estate consultants in combination with potential and project profile studies by the Addis Ababa Investment Office and other investment advisory groups. The two most widely used communication media by real estate developers in Addis Ababa are public media (press, TV, radio) and internet/company web sites. Another important observation is the weak relation between real estate developers and real estate agents as well as local brokers (commission agents) % of the real estate respondents believe that it is beneficial for real estate developers to market by their own. Real Estate Development Process Acquisition of land is one of the major activities in the real estate development process. Urban land in Addis Ababa is distributed through lease. The lease land system has three leasehold permit modalities, namely: auction, negotiation, and award. Respondents had been asked which modality they prefer. Results of the survey show that the majority of the respondents 42.9% prefer negotiation, in addition 28.6% of them prefer negotiation in combination with auction and award. The two groups together form 71.5% of the respondents. Only a single respondent preferred auction. When asked what advantages negotiation has over auction, 28.6% of them responded: it allows to come up with innovative project idea in the part of the developer by selecting a specific site, shortens land acquisition time, avoids throat cutting competition in the offer of bidding prices which might arise from fewer numbers of plots available for tender. Though negotiation is often criticized on grounds of transparency and accountability, 50% of the respondents believe that its advantages outweigh its shortcomings. Among the cumbersome situations faced by real estate developers in land acquisition, the most frequent ones include: negotiation with the former settlers and farmers, the time lag for relocation of former occupants, the decision on the amount of compensation, and settling the issue of other claimants for ownership right. Regarding source of finance 28.6% of the developers use customers periodic payments while the larger groups 50% use customers periodic payments in combination with one or all of the following: bank loans for construction, sell of shares, own finance and facilitating bank loans for customers. In combination 78.6% of real estate respondents rely on customers periodic payments with or without other additional sources to finance construction of their projects. Most of the developers (28.6%) carry the bulk of the construction work through only labor contract to a contractor, another 28.6% of them use labor contract in combination with own force and labor plus material supply contract alternatively. Two of the respondents use only own force while two others use own force in combination with labor and material supply contract and a sister company which is a contractor. Together these later groups constitute 28.6%. Therefore the majority (57.2%) of the real estate developers use labor contract in combination with or without other modalities. 28 P a g e

29 When asked whether real estate developers have a working experience with other development teams such as valuators, real estate agents, brokers or commissioned agents and property managers 28.6% responded that there are no such working relationships with these development teams. 35.7% remained nonrespondents. The remaining groups (35.7%) have working experience with one of the above mentioned actors at some time in practicing their trade. For the question whether real estate developers have a working experience in public partnership with public, civil society and other private sector actors like an area development project; the majority (50%) replied no while 43% of them responded yes. However when asked whether the experience was positive i.e. a win-win situation 71.4% of the respondents preferred to remain non-respondents. Majority of real estate customers (85%) belong to the higher and higher middle income groups. 49.9% of real estate respondents replied that the diaspora group constitutes from 51 to 100% of their customers followed by another 21.4% indicating that it constitutes from 26 to 50% of their customers. This is a substantial share which shows that the diaspora even though not the only customer group, constitutes the major group in the Addis Ababa real estate market. On the modality of transferring the real estate properties to the customers, the majority of respondents (85.7%) replied they transfer through sale while 14.3% of them opted for long lasting leasing. In determining the sale price whether real estate developers use professional consultants or real estate agents 57.1% of them replied yes while 35.7% replied no. The most important factors for determining selling price of a house are floor area and number of rooms, building materials used and size of plot and lease price (see Table 1.1.) Table 1.1: factors for determining selling price of real estate properties/houses No Factor Weighted average 1 Floor area and number of rooms 61 2 Building materials used 43 3 Size of plot and lease price 36 4 Location 30 5 Housing typology whether condos/apartment units or 30 villas 6 Availability of infrastructure and facilities 18 Source: own computation on field survey data (Oct Jan 10) Real estate developers use modalities of payments which vary in the paid amount at a time and its timing. Responding to the applied payment modality, responses show that 64% of them use advance payment plus periodic payments according to the rate of progress of the construction work. Interviews show that the advance payment ranges between 20 to 30% and other payments would be made in three rounds of 25%, 25%, and 20%. Respondents response on when the termination of the real estate developer s control over the site will be effected, the major group 57.1% responded that the responsibility of the real estate terminates when all the payments are paid back by customers. By implication this also concerns the settling of the lease payment. The Land Administration and Building Permit Authority of the City Government of Addis Ababa has also pursued two surveys in 2009/2010 on activities of real estate developers since 1993, the year the lease policy came into effect. The first round of investigative survey by the City Administration had focused on Bole Sub City only and the second survey in the remaining six sub cities: Yeka, Akaki-Kaliti, Nifas Silk- Lafto, Kirkos, Kolfe and Lideta. In the document search 114 records of real estate projects were found in the seven sub cities of Bole (60), Yeka (23), Akaki- Kaliti (2), Nifas Silk-Lafto (22), Kirkos (4), Kolfe(2) and Lideta (1). 15 real estate developers out of the 114 investment projects whose records were located had transferred their leased land to a third party. According to the data gathered 14 of them had transferred 38 hectares of land in the period from March 2006 to September However the amount paid for all thirteen of them was not stated in their respective records. Some developers requested for individual 29 P a g e

30 holding certificate following just on ground subdivision of plots without commencing the construction work or on completion of only the service quarter 28. The report also noted that five developers had borrowed from four private banks by using their leased land as collateral with only two of them having constructed 8 to 30 villas at 30-50% stage of performance. According to the officials from the City Administration, this is in violation of the warning inscribed on the title certificate that reads: the plot of land in this certificate cannot be used as collateral without the prior consent of the lessor. Some of the real estate developers have even provided surety for their customers bank loan. Based on the information from the Land Administration and Building Permit Authority of the City Administration totally 550 hectares of land had been leased for not less than 120 real estate developers until 2007/8 EFY 29. Housing units of not less than were expected to be provided by these real estate developers. However only 2387 housing units were completed and about 1775 were found at different stages of construction. Totally these two categories comprise not more than 14% of the anticipated housing units. 47 sites having hectares of land were not yet developed. According to the respective lease agreement the construction commencement period (a period of 18 months) is over for most of them. The report notes, even those who started construction are only showing half-hearted attempts to give the impression that they have started construction work. The usual alibis mentioned in the report include: delay in handing over the site in the part of the City Administration, delay in provision of infrastructure, price escalation of building materials from time to time and lack of loan finance. Some real estate developers who have been given land free of lease payments or at nominal rate, had transferred the land to a third party without developing it and succeeded to garner huge amount of money. Ultimately the transferred land goes to few (1-3) high class real estate developers. Hence the report admits the inefficiency of the land distribution system. The issuance of individual land titling for undeveloped land is also another concern. According to the survey results by the consultant % of the customers and 44.1% of the real estate respondents responded that legible customers had already received title certificates. 41.2% of the real estate respondents turned to be non-respondents. Nonetheless all the precautions which need to be done before issuing individual land titling such as the status of the construction project, remaining lease payments, and lease period and the accompanying rights and duties were overlooked. How use of undeveloped land as collateral and for surety has been processed is also a dubious aspect of the transactions; for some of the sureties are even very high as compared to the lease price of the land. It has been also impossible to locate some of the real estate sites on the base map of the city since they were not recorded. A clear follow up and tracking system is not also established. As the result, a huge amount of arrears on lease payment couldn t be easily detected. Another study which is relatively comprehensive for it involves city residents (N=1674), customers (N=620) and real estate developers (N=34); is a study report compiled by a consulting firm in October It has to be noted here that among the 120 real estate developers assumed to operate in Addis Ababa the consultant was able to locate only 34 of them. Among the findings of the survey on the responses of residents on short comings of the City Administration in dealing with real estate developers are: weakness 28 A service quarter is a separate unit from the main house, normally built at the rear side of the compound which often accommodates traditional kitchen, maid s room, store, toilet facilities, laundry and ironing room etc. 29 EFY = Ethiopian calendar follows the Julian calendar. The Ethiopian new year commences on the tenth or eleventh of September every year and lags behind seven to eight (Jan. 1 Sept. 10 th or 11 th ) years from the Gregorian calendar. Ethiopian Fiscal Year starts July 8 every year and ends July 7 th of the next year. 30 Sample size includes city residents (N=1674), customers (N=620) and real estate developers (N=34) 30 P a g e

31 in monitoring and evaluation of the performance of the real estate developers (64.6%), and corruption in the part of the employees and officials of the City Government (58.8%). 31 Regarding acquisition of land 44.1% of the real estate developers responded the land was their former holding while 23.5% bought through lease negotiation with the City Administration and 20.6% of them conceded that they bought the land from another lessee. This sell of land by a lessee is taken as a criminal act by the City Administration for the obvious fact it contravenes the provision of the constitution of the FDRE. Indicators which can be used to assess the efficiency of utilization of land resources used by the survey include among others the following: keeping it fenced for long without developing it, subdividing undeveloped land and transferring it to a third person, and using land for non-permitted use. On these indicators responses of customers and real estate developers show a distinct discrepancy in which customers with a response rate ranging from 43.7% up to 47.4% responded yes while the real estate developers responded No with a response rate of ranging from 58.8% up to 61.8% for all the three indicators. Regarding to the question at what level of construction was the property when transferred to the customer, 77 % of the customers disclosed that the site was either empty or at early stage of construction. Though non-respondents account for 38.2%, the majority (58.8%) of the real estate respondents responded that they had transferred the property to the customers after either completing the main house or at least completing more than 50% of it. However it can be ascertained that a considerable number of customers bought undeveloped land or uncompleted house. Regarding responsibility of completing the unfinished house after transfer, 56% of the customers believe that it is the responsibility of the customer (buyer) % of the real estate developers remained non-respondent to the same question, and 20.6% responded that it is a joint responsibility and 11.8% admitted it should be the responsibility of the developer. With regard to provision of infrastructure, 81.5% of the customers and 91.2% of real estate respondents responded positively that infrastructure has been fully or partially provided. For the question who completes if partially provided, 12.4% of customers and 26.5% of real estate respondents responded the city administration, while 28.5% and 23.5% of them respectively responded the developer. 22.1% of customer respondents responded the buyer. 15.6% of customers and 17.6% real estate developers responded don t know. The astonishing aspect of the findings is how such tripartite contractual relationship didn t make explicit the issue of infrastructure provision that requires high financial expenditure. For those real estate developers who don t know by whom it would be completed, it raises question on their professional competency as contractual partners as well as the effectiveness of the licensing procedures. Nonetheless, regarding what the selling price includes, 44.2% of the customers believe that the price includes infrastructure cost and 29.5% of them have no idea. 44.1% of the real estate developers responded it is situational, while 35.3% remain non-responding and only 11.8% of them responded that it includes the cost of building, lease payment, and infrastructure cost. Through time it has later been made known that the investigative surveys which had been carried for a year both by the City Administration and the private consultant were preparations to take necessary rectifying measures in the real estate market by the City Government of Addis Ababa. See Box 1.1 for the actions taken. 31 Lack of support for real estate developers and provision of infrastructure were not taken as short comings of the City Government. 31 P a g e

32 Box1.1: The Aftermath Agreement of 34 Real Estate Developers Annulled The Land Administration and Building Permit Authority of the City Administration of Addis Ababa announced that it has cancelled the agreement of 34 real estate developers who didn t start construction according to their agreement. It has also disclosed that even the performance status of those who started construction is not more than 16 percent. Addis Lissan, Vol. 18 No. 1632, 20 Tikmt 2003 (30 th Oct. 2010), Amharic version Radical Rectifying Measure on Land and Land Related Issues is Underway H. E. Mayor Kuma Demekessa has disclosed that up to now 5.8 million meter square of urban land has been slated for 125 real estate developers. However, hitherto only 18% of the slated land is used for the intended purpose. Consequently million meter square of land has been dispossessed in a campaign of three days in the first week of November Some developers kept the slated land idle by fencing, sold their slated land with only start up structures, invaded public land, even took bank loans using undeveloped land as collateral. Effort to collect unpaid lease payment and other incomes payable to the City Administration amounting to Eth Birr 69.9 million is continuing. Illegal land holding of meter square by Ayat in Yeka has been dispossessed. About m 2 of this amount was an encroached and fenced land used to produce different building materials. Unauthorized land amounting 5000m 2 where the real estate developer started constructing condominium housing and construction work on m 2 of land transferred from another developer has been terminated and the land was dispossessed too. Ayat has been also transferring on sale plots with only the service quarter built. 21 out of the 27 real estate developers operating in Yeka City expanded their land holdings illegally. Addis Lissan, Vol. 18 No. 1633, 24 Tikmt 2003 (3 rd Nov. 2010), Amharic version We Welcome Investors Who Abide by the Rules H. E. Mayor Kuma Demekessa has given interview with the City Administration s organ Addis Lissan on rectifying measures being carried on misuse of public land. The Mayor explained that the 5.8 million m 2 of urban land slated to the real estate developers is made through nominal price and in some cases freely. 50 m 2 of land per household has been allocated freely as incentive. According to a survey by the City Administration 82 real estate developers have illegally expanded their holding amounting to 1,403,431 m 2 of land. 38 developers who didn t start construction according to the agreement have kept fenced m 2 of urban land idly without developing it. According to the Mayor, those reprimanded real estate developers have been served repeated prior notices. They have no lack of information and awareness. They definitely know the sale of land for third person is a criminal act. The Mayor, on the other hand admitted the lack of monitoring and regulatory supervision on the part of the City Government. He has finally remarked: The message what the City Administration has been trying to transmit is that the short cut drive to prosperity by grabbing public land illegally is a criminal act and has to be stopped The path is one and only one - following the developmental path. Addis Lissan, Vol. 18 No. 1633, 24 Tikmt 2003 (3 rd Nov. 2010), Amharic version City Claims Plots Massively Should it go for the average price of Birr 3000 per square meter in the out skirt of the city, the Addis Ababa City Administration would gain over 4.2 Billion Eth. Birr reclaiming 1.4 million square meter of illegally obtained land from 120 real estate developers. This is the newspaper Capital breaking the news. The city has reclaimed square meters of urban land from the square meters of idle plots kept fenced by 38 developers. The city also reclaimed over 240,000 square meters from the pioneer developer - Ayat. The newspaper remarked that according to most lease agreements developers are expected to develop their housing units within 24 months from the date of signing the lease contract. However this has turned difficult condition to meet on grounds of poor infrastructure, escalating costs of construction material and financial problems. The real estate developers complained to the City Administration that obstacles created by the City Administration in clearing plots had triggered the delay. In the meantime complaints from people who fully paid for their homes and who were waiting for the completion of the construction have been looming over some of the real estate developers in the list. On the other hand the city has promised to take care of customers who bought houses on the reclaimed plots saying that it will come up with something that will not affect the people. Capital, Vol. 12 No. 621, 7 th Nov. 2010, English Version 32 P a g e

33 These actions were followed by much indignation in the part of the real estate developers and concerned professionals. The newspaper, Fortune in its vol. 11 No. 550 issued on Nov. 14, 2010 in its editorial note critically commented on the activities of the City Administration. See Box 1.2 for the briefs. Box 1.2: The Reaction City Authorities Have None but Themselves to Blame It seems as if the once thriving real estate industry is on the retreat; timid and subdued by the government s crackdown.businessmen and women are made to lose their properties, whether they are earned legally or otherwise, with a stroke of an administrative pen Nonetheless, the government has made money from the transfers of these plots which they claim were unconstitutional.... Those with plots have actually gone to the public notary offices to notarise the transferred deeds, paid stamp fees and taxes on capital gains, and were issued lease certificates by the districts and the city government...where were the kebele officials who are normally very zealous in stopping residents from refurbishing houses and re-erecting fences when these real estate firms built on plots for which they don t have deeds? Where were the local authorities when these firms fenced vast tracts of land, which the city claims didn t belong to them in the first place?... It is unravelling the behaviours of an executive body that often forgets the fact that it is a party in a contractual agreement. As in any contract, when disputes on the execution occur, both parties turn to an arbitration body where they mutually agree or to a court of law. Unfortunately, here is a development where the City Administration appears to enter into contract with citizens only to take the law into its own hands whenever its officials feel aggravated Whether or not the city authorities are right in taking the measures they have so far, the manner in which they have travelled has created an overwhelming sense of fear and insecurity among many in the business community If they have to lay the blame on anyone, they have only to blame themselves. Fortune, vol. 11 No. 550, Nov. 14, 2010, English version According to the Director for Land Administration and Building Permit the possible rectifying measures include: to repossess the land invaded by the real estate developers, make reuse of idly kept plots, punish those who deserve punishment. And the city administration has to undergo a tremendous house cleaning task (4 th November 2010 interview broadcasted in the Ethiopian Radio National Broadcasting Service). The Institutional Framework According to survey results of the researchers, 64.4% of respondents have benefitted from receiving one or a combination of the incentives before they were rescinded later by the City Government. Results of real estate respondents assessment of existing proclamations/regulations pertaining to the real estate sector by their degree of contribution for the promotion/facilitation of private sector real estate development is shown in Table 1.2 below. The results are shown by the frequency count of respondents under a likert scale of ranging from 1 (highly facilitative) to 5 (restrictive) with a cutting mark of 3 (tolerable). 33 P a g e

34 Table 1.2: Respondents assessment results of existing proclamations and regulations by the degree of promotion/facilitation of the private real estate sector No Proclamation/Regulation Likert scale NR Mean values 1 Urban Lease proclamation Investment proclamation Rights of foreign nationals of Ethiopian origin on their country of origin 4 Regulation to provide land for real estate (Addis Ababa city Government) 5 Expropriation of land holdings for public purposes and payment of compensation Proc. 6 Proc. To provide for property mortgaged or pledged with banks 7 Value added tax Proc Income tax proclamation Source: own computation on survey data (Oct Jan 10) NR = Non respondents NB: Non respondents are excluded from mean computation Accordingly the first three rules i.e. the urban lease proclamation; the investment proclamations and rights of foreign nationals of Ethiopian origin on their country of origin are categorized as facilitative. The later one is taken as the most facilitative (one can relate it to the emergence of the diaspora group as major customer in the real estate market) while the value added tax proclamation is taken as the most nonfacilitative. The fact that there is only one non-respondent per regulation in the first three proclamations and an average of 4 non-respondents per regulation in the non-facilitative group i.e. # 4 to 8, magnifies the unfavourable attitude to the latter group of rules. Respondents are also asked in which area of the institutional framework further improvement need to be made. Table 1.3 shows the prioritized list based on weighted averages. Table 1.3: Respondents Prioritization for Institutional Improvement No Area of institutional framework Weighted average 1 Institutional arrangement favouring the development of credit facilities and 109 financial (capital) markets 2 Institutional facilitation for the development of basic building materials like 55 cement and reinforcement steel bars 3 City government authorization procedures & standards 41 4 Master plan land use and height regulation 40 5 Procedures for the transfer of ownership from the developer to the new owners 39 6 Radical changes from government ownership of land to freehold private 38 ownership 7 Land lease allocation through private land development companies 32 8 Compensation and valuation regulations 25 Source: own computation on field survey data (Oct Jan 10) From the analysis shown in the above table and as ascertained by other surveys and studies the institutional reform to avail loan finance is of high urgency in the development of the real estate sector in Addis Ababa. The less attention given for production of basic building materials is also identified as the second area where overhauling the institutional framework to facilitate production and supply of building materials is identified as the second high priority area. Operational level rules such as authorization procedures and standards together with master plan and land use regulations are also identified as high priority institutional areas for improvement. 34 P a g e

35 The Role of Government Responding to the question on the role of the private sector and government in the provision of housing 71.4% of the real estate respondents have the impression that government is playing the leading role. Responding to the question whether the government needs to change its role, mixed feeling is observed in which 50% responded no doesn t need to change its role, while 35.7% replied yes and the remaining are identified as non-respondents. Asked for their opinion on who is more legible to provide housing for the low income from market perspective (affordability) 71.4% of respondents replied the government, while 21.4% replied the private sector and 14.3% replied government, community groups and NGO. Only one respondent answered government and private sector jointly. The role of government in institutional development and enforcement was also assessed by real estate respondents. Responses are given in Likert scale of 1 (indicating high positive value i.e. very satisfied, very conducive, very sufficient, very high, very appropriate) to 5 (indicating high negative value i.e. unsatisfactory, not conducive, not sufficient, very low, not appropriate respectively). The cut point or mean value is 3 indicating qualities of being satisfied, sufficient and acceptable. Mean values on the likert scale below 3 indicate high positive assessment while mean values above 3 indicate negative assessment values. The results are shown in Table 1.4. Table 1.4: Assessment of government s role in institutional development and its enforcement capacity No Aspect Likert scale NR Mean Value 1 Satisfaction on the service delivery of the city administration 2 Conduciveness of legal rules and regulations for new entrants in the real estate sector 3 Sufficiency of number of plots and frequency of public auction for lease 4 Role of government in promoting growth partnership in terms of breadth (quantity) and depth (strength) 5 Institutional enforcement capacity of government: in terms of professional manpower 6 Institutional enforcement capacity of government: in terms of issuing appropriate (enforceable and affordable) rules and regulations 7 Institutional enforcement capacity of government: in terms of legitimate violence e.g. use of police force to evict and demolish informal settlements Source: own computation on survey data (Oct Jan 10) NR= Non respondents are excluded from mean value computation As shown in the Table 1.4 above except for the use of legitimate violence e.g. the use of police force to evict and demolish informal settlements which is taken as acceptable indicated by mean value of 3, all mean values indicate to a lesser or high degree a not favourable assessment result. Specifically institutional capacity of government in terms of professional man power, and the capacity of government in issuing appropriate (enforceable and affordable) rules and regulations, the number of plots and frequency of public auction for lease, and conduciveness of legal rules and regulations for new entrants to join the real estate sector need to be concerns to deal with. Synthesis & Discussion The proceeding discussion on survey results is organized around three themes: the real state process with emphasis on land acquisition, the existing institutional framework and behaviour of real estate developers, and the search for new type of legality to resolve the tension between informal practices and formal institutions. 35 P a g e

36 Land acquisition The data collected shows that real estate developers in Addis Ababa acquire land through various means. The first is by default through public leasing from which the majority (71.5%) preferred negotiation among the three leasehold permit modalities. The second is acquiring land plots through private leasing where a lessee potential developer transfers his/her leased land to another developer on negotiated amount. This is usually done by settling the blocked bank account for the lease payment plus some amount which goes to the seller/ lessor s pocket. Among these individual lessors there are developers who got land free of lease payment or at a nominal lease payment. Investigative report by the City Administration disclosed 15 out of 114 (13.2%) developers transferred their land to a third party, almost all of them in the period from March 2006 to - September The third means of acquiring land for real estate projects is the use of own land. Survey data by the private consultant on 34 real estate developers showed that only 23.5% bought land plot through lease negotiation % of the respondents had responded that the land was their former holding. Additional 20.6% of real estate respondents conceded they bought the land from another lessee. These later groups together make up 64.7% of the real estate respondents. However since the Proclamation No. 47/75, the Proclamation for the Nationalization of Urban Land Extra Houses had been issued, the size of plot for personal residential holding was limited to 500 m 2. A plot of land in excess of this amount was to be expropriated and allocated to another allottee as long as the plot is divisible and can accommodate another residence or use. Taking the minimum amount of 50 units to qualify as a real estate developer and assuming 100% villa type (before 29 th Nov.2005) and considering plot size in a range of m 2 or an average of 750 m 2 the total area required will be 50*750*1.20 (allowance for road and green area) = m 2. Or in the case of a ratio of 3:7 for villas and condominium taking G+4 storey condominium and an average of (50+150)/2=100 m 2 of floor area per condo unit including the common units; and for (15 villas *750) + (288*3blocks of condos)]*1.20 (road and green area); the minimum area required will be 14536m 2 or roughly m 2. Such former holding of an area in this range can only be acquired through one of the following means: 1. Land allocated in the later days of the Derg for investment purpose, 2. Land leased under the incumbent government for non-private residential investment, 3. Land informally purchased from peasant associations/peasants or from other developers/ investors mentioned above or from other inhabitants who managed to grab urban land following the 2005 elections, 4. Land transferred from another residential real estate developer through private lease purchase, 5. Though they don t qualify as a real estate developer in the later sense of the meaning i.e. one who builds 50 houses and above, potential developers wanting to redevelop their former plot used for own occupation or business in to a multi-storey building. Except for the latter option, most of the above mentioned means of acquiring land would somehow involve informal land transactions. Recall the fact that it was impossible to locate most of the real estate sites on the base map of the city. Add to these the illegal land expansion of 82 real estate developers which totals to 140 hectares of land according to the briefing of Mayor Kuma (see Box 1.1). This was a serendipitous finding for us, the researchers. Since projects of real estate developers are formally registered investments involving huge financial resources, our assumption was that they would strictly follow the formal procedure. 32 Recently the newspaper Fortune (Vol. 11 No. 570 Sunday April 3, 2011) revealed the news that Sunshine Real Estate Plc is in the process of transferring 14000m 2 plot of land located around Megenagna in Bole Sub City to Access Real Estate Plc. According to the newspaper even though the deal has been agreed it is not clear which law provides such provision to finalize the deal. 36 P a g e

37 The General Institutional Environment & Formal and Informal Institutional Interfaces Real estate development like any other economic activity deals on satisfying wants with the application of scarce resources. Wants in the case of property development are spaces to work in, sell from, live and enjoy recreational activities. The process of erecting buildings to provide space employs key factors of production: land for the site, capital for purchase of the land and materials, labour to erect/ construct and manage the process and the entrepreneurial talent of the property developer (Balchin and et al., 2000). We recall at this point the fact that demand and supply factors of real estate products are highly influenced by the policy and institutional (laws, rules and regulations) framework and the way the construction industry is organized. The research shows that real estate developers in Addis Ababa have been operating under unfavourable climate. Among these unfavourable circumstances mention can be given to the following: 1. Shortage of bank loan both in terms of project finance for developers and long term mortgages for buyers. Therefore real estate developers are obliged to self-finance their new constructions. One of these mechanisms is to use upfront financing through customers advance payments and periodic installment payments phased according to the rate of progress of the construction work. 2. In addition to the lease payment which is usually in the order of tens and hundreds of millions, there are 15% VAT payment, 4% title transfer payment, bank interest ranging from 10-12%, a financial equivalent in the order of 60% of the loan amount from private banks, and 50% from state owned banks need to be paid as collateral on the loan amount. Ethiopian at birth and bearing foreign citizenship who had been previously allowed to bring in their belongings without duty, currently are obliged to pay duty. All these substantially reduce purchasing capacity of customers. 3. Article 10(b) of the proclamation for the re-enactment of urban land lease holding states 5% as the minimum advance payment however the regulation of the City Government to provide land for real estate (Regulation No. 20/2005) states 20% advance payment for real estate developers. 4. Lack of government support to import building materials e.g. cement import by the private sector is not currently allowed (Access Capital, May 2010) 5. Scarcity, rapid and unexpected escalation in construction material cost (according to CSA price data, an increase up by 125% since the mid-2000s even as high as 300% for certain critical items such as cement is reported) 6. High lease price: Table 1.10 below shows the data on average lease price in May 2010 Table 1.5: Average Lease Price in May 2010 No Modality Sub City Use Rate (Birr/m 2 ) 1 Auction Arada Commercial Kirkos Commercial and mixed use 7560 Lideta Commercial and mixed use Negotiation Bole Residential 4720 Akaki-Kality Industrial 3413 Source: Access Capital real estate sector report (May 2010) If an adjoining land is not demarcated or reserved for real estate use, the lease price to expand an existing project site to the adjoining land will be the highest auction price of the surrounding multiplied by a factor of 1.5 up to 5 for plot areas ranging from m 2 respectively (Regulation No. 20/2005 Addis Ababa City Government Regulations to Provide Land for Real Estate). According to this arithmetic the negotiation lease price for 1000 m 2 plot area in Bole Sub City amounts to more than 4.7 million Birr. Rather being involved in such costly transactions some of the real estate developers sought for an alternative. With the green light provided by the City Administration they managed to purchase land from other real estate developers (through private lease?). Often such buyers and sellers go to the public notaries (Document 37 P a g e

38 Registration and Acts Office) and register the deal. Nevertheless such contracting parties may not necessarily go to the City Administration for authorization of the transfer. 1. Most leases require developers to deliver their housing units within 24 months from the signing of the lease contract. In practice this has been a difficult condition to meet. 2. Administrative and bureaucratic delays in the actual release of already assigned land. 3. The spatial locations of most real estate development projects are at the outskirt of the city. 85.5% of the projects are located in the transitional zone, peripheral zone, and nearby satellite towns where infrastructure provision is costly. The issue of capacity of real estate developers on the skill and knowledge of the trade is also another concern. Real estate developers according to Peiser and Shwanke (1992) in addition to having the normal real estate skills in financing, marketing and property management are expected to be informed critics of architecture, be knowledgeable in construction, law, public finance. The few successful developers who survived in the market do actually have experience as managers of sister companies in construction contracting or engineering/development consultancy or building materials suppliers. Real estate activities usually require interim financing during the construction and development phase and permanent financing after improvements have been made and the property is leased to tenants. Contrary to the high demand for credit market, the focus of the Ethiopian Government had been for long on stabilization i.e. containing inflation and reducing domestic and foreign imbalances. This goes back to the first phase of economic reform program for the period 1992/1993 to 1995/96 whose focus was on liberalization and stabilization. Provisions of finance for real estate, consumers, and mortgages are still now insignificant or all together non-existent. It is just recently after the Five Year Growth and Transformation Plan ( ) attention has been given to the credit market. Hence, almost no real estate developer starts work without securing about 20% of the house price in advance payment from potential customers. Therefore financing real estate development with customers cash has become the standard practice in Addis Ababa. Neither residential purchase is possible without mortgages. The expansion of the consumer market only happens when there is a credit system capable of transforming the existing need into effective demand. Without a credit system, the danger is that as noted by Stanfield 1996: few people or companies who manage in one way or another to take advantage of position or organized groups claiming to acquire a disproportional share of privatized properties or manage to get disproportionate access to capital, will dominate the land markets as they emerge, setting the stage for polarization of the society into a few land lords and a mass of people without property. This lack of credit finance has actually contributed to the revival of informal money lenders which led to a crackdown on rampant usury in the year , resulting some of the major usury lords ( IMFs as some of them used to be called) to imprisonment. Some real estate developers overcome this handicap by actually facilitating bank loans for their customers. The land holding certificate of each customer (which is somehow issued prematurely and informally) is used as security for a loan to guarantee the repayment and the customer is provided loan up to 50 percent of the price as over draft facilitated by the real estate developer. The developer acts as mortgage guarantor or surety. This might have been adopted from the public condominium financing in which the customer will pay an advance payment of 20 percent of the price and the rest is covered by bank loan. The loan agreement is made between the customer and the Commercial Bank of Ethiopia and the government plays the role of facilitator and guarantor of the deal. For example the government replaces another new customer in case of default, playing its role of surety. In fact the bank didn t finance the construction of condominium houses as part of its business strategy; however it could be taken as a compliance agreement to the government direction. Unpredictable and inconsistent institutional and policy framework is one of the unfavourable situations faced by real estate developers. Most informal/illegal activities of the real estate developers took under the shadow of formal state rules, from which they selectively and in opportunistic ways try to take 38 P a g e

39 advantage of. This is made possible because of the inconsistencies and contradictions observed in the formal rules and their enforcement methods. Among such inconsistencies and loopholes in the formal rules include: 1. The decision of the Land Development and Administration Board of the City Government on transfer of real estate plots to a third party which allowed the transfer and sale of partially finished houses and also the issuance of individual land holding certificates even if the construction is not completed (reference is made to Minutes No. 12/2005 of the Land Development Board of AACA dated September 31st 2005). 2. The provision on incentives which provided land free of lease payment for developers who proposed real estate development projects which accommodate 50 m2 of condominium per household. As the result some smart developers who know how to play around with the rules of the game submitted such proposals and took land in thousands of meter square free of lease payment and later on transferred it to other developers with millions of Birr. These developers didn t even pay the normal land rent which is applicable to all former holdings or holdings which are exempted from lease payment. This provision on incentives was later rescinded by City Government Regulation No. 20/2005, regulation to provide land for real estates. 1. The provision in Article 13 the Proclamation on re-enactment of urban land lease holding (Proc. No 272/2002) which allows any lease possessor to transfer or undertake a surety on his right of leasehold, and also use it as capital contribution to the amount of the lease payment he has made. Nonetheless the enforcement of this right has faced resistance by government owned banks on the ground of priority to repossess the land in case of default. Is that the City Government (the owner of the land) who has priority or the bank (the lender) upon default of the lessee/the borrower? However, according to the investigative report of the Land Administration and Building Permit Authority of the City Government of Addis Ababa, it has been ascertained that private banks have been dispensing loans using un-built leased land as collateral. See ANNEX 1 for summarized provisions/ loopholes in the formal institutional framework. It is clear from the above comparison that there is an apparent conflict between expanding meaningfully the lease right (that it is no more inferior to freehold except in its tenure being limited in time) and the desire to forbid the transfer of land through sell or exchange which allowing it might lead to contravene the constitution of the FDRE. It is also obvious that there are conflicting provisions among the different levels of the rules. Such conflicting provisions are observed for example between the Minutes No. 12/2005 of the Land Development Board of AACA (Sept 31 st 2005) and Implementation Directive for Land Request and Authorization Conditions for Real Estate Developers (Nov. 2004). The various provisions made by the different rules and regulations at different levels are not also consistent to the hierarchy of laws and rules. Most of the detail directives are issued before the regulation to provide land for real estate, Regulation No. 20/2005 of the City Government of Addis Ababa. Based on the survey results of the research the real estate developers have a negative assessment of the majority of rules pertaining to the real estate sector (see Table 1.3 and Table 1.4). They have unfavourable attitude towards the role of government in institutional development and in its enforcement capacity. After going a considerable distance in abiding to the provisions of the formal rules (accommodating), it seems that they finally resorted to their informal arrangements when the possibility to co-produce better laws was lacking, resulting in competing norms of behaviour. The early and premature issuance of individual land holding certificates facilitated by the technocrats in the City Administration and using it as a guarantee to loan, with the real estate developer playing the role of surety was one of such arrangements. The informal deal on adjoining land for expansion is another example. Hence it is possible to say that the real estate projects could not have been materialized without these informal arrangements. Therefore the formal informal interface can be depicted as shown in Figure 1.3 below. 39 P a g e

40 40 P a g e

41 Level of effectiveness of formal institutions Ineffective Effective Figure 1.3: Case formal informal institutional interface Accommodating Complementary Competing Conflicting Substitutive Compatible Degree of compatibility Actors goals vs. expectations from outcomes of formal institutions On the other hand greed has taken its toll on some of the real estate developers to use every loophole in the inconsistent and unpredictable institutional framework to their advantage. The underlying drive comes from the value system of some of the business men who used to have Get rich quick mentality having a background in trading activities with no or lower added value. Greed as actors behaviour is sometimes reinforced as unintended consequence of incentives which derive from the formal rules and regulations. At other times it might be aggravated by informal norms or practices. For those 85 real estate developers who illegally extended their landholding an explanation might be given to the endowment effect in the behavioural economics. Actors value a good more if it is part of their endowment (an adjoining piece of land to ones project site) than if it is not. The endowment effect is addressed by assuming that actors treat additions to their endowments differently from subtractions (Thaler 1980). Therefore these actors have paid whatever cost to incorporate the adjoining land to their holdings. The effectiveness of institutions refers to comparing the outcomes with the goals of policies and institutions. These can be in terms of accessibility and affordability of housing, contribution to alleviate housing problem of the low income and the poor, better access to land and increasing the housing stock. Regarding increasing the total housing stock, the revised master plan of Addis Ababa in its housing proposal projected the lion share of provision to be from the private sector and only 2.2% of the projected amount from the government. However evaluation report on the implementation of the master plan shows that about condominium housing units were produced by the government which makes 53% of the total housing supplied. The expectation from private real estate developers was about and what developers pledged to provide was estimated to housing units in the plan implementation period. Actual output so far is limited to about 25% of the pledged amount or 4 % of the total housing supplied. This is expressed in the responses of real estate respondents in which 71.4% concurred that government is playing the leading role in housing provision and the government need not change its current role in housing provision. As things stand now, for a real estate developer who depends much on customers financial capacity, providing housing for low income and the poor might be unthinkable. On the other hand interviews with some real estate developers explain that the comparison with the state promoted Integrated Housing Program (condominium housing) and housing development by private real estate developers as unfair since the two operate on different playing fields. Condominium housing consumes basic building materials such as cement and reinforcement steel bars imported duty free. Lease payment is not an issue in the case of condominium housing. Bank loan is available. Infrastructure cost and 41 P a g e

42 other overhead costs are covered by government. Therefore, the claim that private real estate developers don t cater for low income groups doesn t hold water. Some respondents even genuinely appreciated in particular those pioneering developers for the success they achieved by overcoming such unfavourable institutional environment. From the preceding discussions the inefficiency and ineffectiveness of the existing institutional framework pertaining to the real estate sector is quite apparent. In light of this, there are two strategies to be considered: continuing the aggressive enforcement of existing rules and regulations or with minor improvements, in which case evaluating the outcomes and impact needs some time; or analyzing the discrepancies between the informal practices/ norms of behavior and formal rules/regulations and adapt some of the norms of behavior through an institutional reform in a participatory/co-governance arrangement. In a nutshell the formal rules and regulations pertaining to land and real estate did neither produce the expected efficient utilization of land resource nor promote fairness in accessibility to public resources. Social Urbanizers and the Need for New Legality In either of the two strategies mentioned above, there are few points of concern for institutional reform from both aspects of real estate developers and the City Government of Addis Ababa. Theoretical as well as international empirical cases are used as foundation in the drive towards a new legality. Regarding Real Estate Developers The concept social urbaniser was used in the story of the Integrated and Sustainable Development Project by Beatriz and Bonat (2010), a contribution to a compilation of urban development practices in Latin American countries (Rojas, 2010). In fact the phrase has been used back since the early 2000 in an agreement between the municipality of Porto Alegre 33 (Brazil) and the Lincoln Institute of Land Policy in Cambridge (Massachusetts), to test the viability of social urbaniser. According to Porto Alegre Master Plan (LC 434/99), the social urbaniser is the private real estate company registered in the municipality to undertake urban operations of social interest in urban development areas identified by the public sector. As instrument its objective was to subdivide land that is suitable for urban use in order to satisfy the demand for housing among low income households. More important in understanding the characteristics of the social urbanisers is the nature of the formulated project, that is, an integrated and sustainable development project. The Integrated and Sustainable Development Project was launched in August It supported alliance between the public and private sectors. The public sector led the incorporation of new lands into the city while at the same time protected the environment. The private sector made possible the construction of low cost housing in areas of urban expansion that are attractive to real estate developers. Our intention here is not to make an extensive discussion on the emerging concept of social urbanisers. However, to make a long story short, the concept of social urbanisers is very much related to contemporary concepts such as: pro-poor growth, smart growth, sustainable growth or corporate social responsibility 34. On the other hand theoretical discourse on city and property views land and property from the perspective of their economic as well as social function. The economic function concerns issues of efficiency while the social function deals with equity issues. The social function of the city and property implies gains may not be simply economic but also creation of sustainable spaces. This discourse between the economic and social function of the city and property is related to the concept of the right to the city. 33 Porto Alegre acclaims world recognition in introducing the participatory budgeting process too. 34 All imply the recognition by businesses themselves that sustainable practice (economically, socially and environmentally) is not only good but also profitable. 42 P a g e

43 The concept of the right to the city was originally coined in the late 1960s by the French philosopher and sociologist Henri Lefebvre. A central theme in his work - La Droit a la Vilie written in 1967, is a perception of the city as an oeuvre, a collective artwork of all the inhabitants and users (not limited to the citizenship) of a city. Inhabitants can contribute to the oeuvre by collectively shaping the future of urban space and by inhabiting their environment actively. The right to the city advocates the equal usufruct of the city through the principles of sustainability and social justice. Basically it has two pillars: the right to habitation (appropriation) i.e. the right of all city dwellers to fully enjoy urban life with all of its services and advantages; and the right to participation i.e. taking direct involvement in the management of cities. According to Lefebvre the appropriation of space is more important than the domination of those who own it. As an oeuvre, Lefebver stressed the need for the full recognition of use values over the excessive emphasis on exchange values. Thus implying the social function of space as more important than the profit that can be made by its exploitation or selling (Lefebver 1967). UN HABITAT s new report 2010/2011: Bridging the Urban Divide, also recommends giving every resident the right to the city in which they live. At a parallel discourse, Grondona (2000) discusses three basic levels of morality 35 : the highest is altruistic and self-denying which the morality of saints and martyrs is. The lowest is criminal (ity), disregard for the rights of others and the law. The intermediate morality is what Raymond Aron calls a reasonable egoism the individual reasonably seeking his/her own well-being within the limits of social responsibility and the law. Whether real estate developers may or may not involve themselves in the provision of housing for the low income and the poor, they need to accept the following limits in pursuing their profit goals from the perspective of social function of land and property: From the perspective of social function of land, the value appreciation of land is not only derived from private investments rather a substantial amount of it is public either due to the effect of urbanization through for e.g. conversion of agricultural land into urban land (i.e. a change of land uses into a more profitable uses) or through public sector investment to install infrastructure. The government has a responsibility to appropriate such future land value increases to the benefit of society (UN-HABITAT 2002:Pp??); A very important characteristic of real estate is the nature of externalities in land development. A primary function of property rights is that of guiding incentives to achieve a greater internalization of externalities (Demsetz 1967). Real estate developers to the best of their capacity need to contain/internalize their negative externalities. However, since all costs and benefits in land development cannot be internalized there are costs which have to be borne by neighbours or society at large, and benefits that accrue to free riders. These externalities issue provides legitimacy to government to control land uses and to collect different taxes from property. Where land is publicly owned the government has also the responsibility to expropriate or penalize holders of vacant land in a form of un/development tax. Holding vacant land or idle property for long creates incentive for speculative markets at high cost to society 36. The government has the responsibility to protect benefits accruing from deregulation and relaxation of stringent housing standards and regulations (in case they are applied) in order to allow the low income and the poor to shelter themselves from being appropriated by intermediaries including real estate developers and contractors. Opportunistic behaviours such as tax evasion, quality shirking and adverse selection invite 35 Morality as used by Gorndona refers to the behavior of someone who acts out of respect for an intrinsic value formerly accepted at will and later incorporated as an inner imperative 36 Brazil Architects Congress (1963) declared idle property unlawful in its first proposal for urban reform. 43 P a g e

44 state intervention. For those who want to gamble they have to accept the results of the gamble whether in the form of profit, loss or punishment. Greed as self-interest with disregard for others welfare comes at this point when developers who have been given urban land free of lease payment as incentive to provide affordable housing to low income groups sell the land without making any added value and garner the income they don t deserve. Greed as allconsuming and insatiable behaviour comes when a lessee developer using his subleasing right (according to contemporary provisions of some of the regulations or decisions of the authorised bodies of the City Administration) takes away the public share (equity) of the appreciated value of land. Recall this was done at high cost to displaced poor peasants and poor urban residents. This happened also when even the smallest plot allocation to the low income inhabitants through lottery had been suspended. In corollary to the above highlights on the social function of land and property the concept of social urbanizer can be extended to include real estate developers whose activities and goals transcend beyond the immediate economic gains and address sustainability aspects of the social function of land and property. This is specifically very important in the case of Addis Ababa where the development of the real estate market is at early stage. Regarding City Administration Urban development as an endless endeavour is the cumulative effect of contributions made by all inhabitants and foreign investors which include government (bilateral and multi-lateral co-operations), community groups, civil societies and private businesses. As a matter - of- fact, the backbone of urban growth is the private businesses. Working with the private business in development partnership requires trust. Making reference to Gorndona: To trust in the individual, is one of the elements of a value system that favours development Implicit in the trusting society is the willingness to accept the risk that the individual will make choices contrary to the desires of government. If this risk is not accepted and the individual is subjected to a network of controls, the society loses the essential engine of economic development ; [Emphasis added] The city administration as a contracting entity entering into contract with other development actors is obliged to respect and behave according to the provisions of the contract to matters involving that transaction; Harmonizing the rules of the game at operational level and collective choice level to the constitutional rules 37 is the sole responsibility of the public regulatory organizations specifically in the absence of a co-governance arrangement to craft rules of the game jointly. Providing a coherent, consistent and relatively stable institutional framework is one of the main roles of government. This helps to promote predictability in the investment environment. However there are decisions to be made by the city administration on choices of risks to accept or not to accept. Which of the following activities of real estate developers involves higher risk to accept? The activity of a real estate developer X who appropriated an adjacent piece of land 50000m 2 in area through an 37 Constitutional rules are rules that shape the politics of determining the collective decision rules and in turn the operational rules. Collective choice rules are the rules that are used by appropriators, their officials, or external authorities in making policies about how resources should be managed. For instance they dictate the standards for establishing and enforcing lease conditions. Operational rules allow us to make day-to-day decisions e.g. specifying lease conditions what the lessee can and cannot do with the leased land right, the payment modality, and etc (Ostrom, 1990, Hong and Bourassa, 2003). 44 P a g e

45 informal transaction and build cheaper condominium houses or the activity of a potential developer Y who took 5000m 2 land free of lease payment as incentive to provide a relatively cheaper housing and sold it without making any development/improvement? Conclusion and Recommendations As elaborated through the analysis and discussions even though greed as the function of the pathology of the individual had manifested in the real estate market as in any economic activity, the culprit for the inefficiency and ineffectiveness of the market was majorly the unfavourable institutional framework. Some indulgent rules or regulations have actually aggravated the pathology thus reducing total value. A typical example is Minutes No. 12/2005 of the Land Development Board of AACA (Sept 31 st 2005) which allowed the transfer of lease right even if the house is not constructed and land hold certificate to be issued for the new possessor. Various loopholes in the institutional framework and inconsistency of rules at different levels have created favourable circumstances to promote own benefit with utter disregard for the welfare of others. A weak enforcement as admitted by the City Administration by the lack of monitoring and regulatory supervision was also another factor. Contracts between customers and developers lack comprehensiveness and transparency (e.g. regarding responsibility of infrastructure provision), and aggravated by weak legal enforcement are susceptible to frequent breach. Organizationally the discrepancy between the offices of public notary for registration of contracts/deeds and the land administration and permit functionaries of the City Administration for transfer of the title is also another loophole exploited. Real estate developers have devised various ingenious ways to circumvent the shortcomings of the institutional framework specifically those constraining access to critical inputs such as land, development (credit) finance and to a lesser extent infrastructure. With the current level of unfavourable circumstances the real estate projects couldn t have been materialized without the informal arrangements they pursued. According to assessment by real estate developers, three rules/regulations have been identified in particular as facilitative, namely: the lease proclamation, the investment proclamation and the rights of foreign nationals of Ethiopian origin on their country of origin. However the rights the lease administration bestows upon the lessee and its modalities of lease sale and payment demand improvement. For example survey results show 71.5% of respondents prefer negotiation to public auction. As things stand now, the supply and demand conditions have been aggravated by lower frequency and smaller number of plots being presented for auction in uncompetitive market. Opinion survey show also the focus of public lease sale should be increasing the housing stock and its affordability not serve only as revenue enhancing means for the city administration. Identified major areas of institutional reform by respondents include institutional arrangement favouring the development of credit facilities and financial (capital) markets, and institutional facilitation for the development basic building materials like cement and structural steel bars. Appropriate institutions and incentive mechanisms can help to regulate excessive behaviour such as greed and align incentives to the social good. In the drive towards a new legality, some positive theoretical as well as empirical foundations have been highlighted in section 6.3. The newly reviving concepts of the right to the city and social urbanizers as exercised through many initiatives at country level (e.g. Brazil), regional level (EU) and international level (UN-HABITAT and UNESCO), would help to develop rules towards a more sustainable development. This might necessitate communal forums for city government, developers and consumers. 45 P a g e

46 ANNEX 1: Provisions of Various Rules Pertaining To the Real Estate Sector No Action Major Provisions of Formal rules/ Administrative Decisions Source Provision 1 Transferring leased land to Urban land lease holding (Subject to Art. 7 & 9.1) any person who acquires the third party without/partial proclamation No. right to hold urban land on lease may transfer or development made on land 80/1993 Art. 10/1 pledge such right or contribute it in the form of a share to the extent the rent paid Re-enactment urban (Subject to Art. 7 & 4/1) Any lease hold possessor may lands lease holding Proc. 272/2002 Art.13/1 transfer, or undertake a surety on his right of leasehold; and he may also use it as a capital contribution to the amount of the lease payment he has 2 Issuance of individual land holding certificate 3 Land granted free of lease payment 4 Phasing and control of progress Source: Analysis result on review of various rules and regulations. Reference Minutes No. 12/2005 of the Land Development Board of AACA (Sept 31 st 2005) Implementation Directive for Land Request and Authorization Conditions for Real Estate Developers, Preamble (Nov. 2004) Implementation Directive for Land Request and Authorization Conditions for Real Estate Developers (Nov. 2004) made. A lessee of land leased for real estate development can transfer his right if he wants to, even if the house is not constructed and a land holding certificate could be issued by the sub city administration in the name of the new possessor. This reinforces the above provisions. However in the Directive for Land Request and Authorization Conditions for Real Estate Developers (Nov. 2004), a developer can only request for individual land holing certificate or a common ownership certificate in case of condominium for the phase he has completed (Art. 5.7). Makes reference to the Regulation to be issued to provide land for real estate, No. 20/2005. Despite the fact that the date of the issuance of the regulation is one year later, the directive presumes a regulation which allows to grant land free of lease charge for developers who want to be involved in economical condominium housing projects which allow access to housing specifically for low income people. However by the time the regulation was issued it provided no such provisions. The directive in its Art.2.6 defines commencement of construction when the substructure work (i.e. foundation and backfill) is completed according to the building permit issued. Land holding certificate and building permit will be issued only for the first phase and liable to get the same for the second phase only after it has been ascertained that construction work of the first phase has been commenced according to the [submitted] activity schedule (Art. 5.3). If the developer fails to meet the schedule he will be serviced notice three months before the expiry of completion of the phase and might lose the land for the next phases if he fails to commence the construction (Art. 5.6). Access Capital (2010) Access Capital Research, sector report real estate Allen, Douglas W. (1991), "What Are Transaction Costs?" Research in Law and Economics, 1991, 14(0), pp Balchin P., Issac D., and Chen (2000), Urban economics A global perspective, Palgrave, New York, USA Beatriz and Bonat (2010) Porto Alegre: The role of the social urbanizers, in Rojas Eduardo (ed.) 2010, Building cities: neighbourhood upgrading and urban quality of life, Inter-American Development Bank (IDB) Barzel, Y. (1997), Economic analysis of property rights, second edition, Cambridge University Press [Book] 46 P a g e

47 Chang Ha-Joon (2000), Breaking the mould: an institutionalist political economy alternative to the neo-liberal theory of the market and the state, Cambridge Journal of Economics, 2002, 26, pp [journal] Clements Mathew (2011) self interest vs. greed and the limitations of the invisible hand (web based) Demsetz Harold, Towards the Theory of property rights, The American Economic Review, Vol. 57 No. 2, May 1967, pp Helmke Gretchen and Levitsky Steven (2003), Informal institutions and comparative politics, Working paper No. 307, University of Rochester and Harvard University [working paper], see [accessed: 26 th Mar. 2008] Gorndona Mariano, A cultural Typology of Economic Development in Harrison and Huntington (eds.) (2000), Culture matters: How values shape human progress, pp , Basic Books, USA Helmke Gretchen and Levitsky Steven (2003), Informal institutions and comparative politics, Working paper No. 307, University of Rochester and Harvard University [working paper], see [accessed: 26 th Mar. 2008] Helmsing A.H.J. Bert (2001), Local Economic Development in Africa: new Generations of Actors, Policies and Instruments, Working Paper No. 12, July 2001, Regional and Local Development Studies, Addis Ababa University, Addis Ababa, Ethiopia Hong, Yu-Hung and Bourassa, Steven C., Why Public leasehold? Issues and concepts in Hong Yu- Hung and Bourassa Steven C. (2003) Leasing Public Land: policy debates and international experiences, Lincoln Institute of Land Policy, Cambridge, Massachusetts Keogh and D Arcy (1999), Property market efficiency: an institutional perspective, urban studies, Vol. 36, No. 13, Kahneman D. and A. Tversky (1979): Prospect theory: An analysis of decision under risk, Econometrica, 47, Klein, M., (1957), Envy and gratitude, London: Tavistock Korf Benedikt, Rethinking the Greed-Grievance nexus: property rights and the political economy of war in Sirilanka, Journal of Peace Research, Vol. 42, No. 2 (March 2005) pp , Sage Publication Ltd. Levitt Steven D. and Dubner Stephen (2009), Freakonomics, Harper Perennial, USA Lindfield M. Reymond (1998), Institutions, incentives and risk: Preparing markets for private financing of urban infrastructure, Erasmus University of Rotterdam [PhD dissertation] Jin Hanqing and Zhou Xun Yu (2011), Greed, Leverage, and Potential Losses: A Prospect Theory Perspective McEachern William A., (2003) Economics: A contemporary Introduction, 6 th edition, Thomson South Western, Ohio, United States of America North Douglass C. (1995), The New Institutional Economics and Third World Development, in Harriss John, Hunter Janet and Lewis Collin M. (eds.), 1995, The New Institutional Economics and Third World Development, Routledge, USA and Canada North, D. (1994) Economic Performance Through Time, The American Economic Review, Vol. 84, No.3, pp North Douglass C. (1990), Institutions, Institutional Change and Economic Performance, Cambridge University Press, New York, the United States of America Ostrom, E., 2005, Doing Institutional Analysis: Digging Deeper Than Markets and Hierarchies; in Menarde, C., and Shirley, M. M.(eds.) Hand Book of New Institutional Economics, Springer, Dordrecht, p Ostrom, E., (1990) Governing the commons: the evolution of institutions for collective action, Cambridge University Press, Cambridge Peiser with Schwanke (1992): professional real estate development: The ULI (Urban Land Institute) guide to the business, Dearborn Financial Publishing, Inc, USA Porter M. (1989), Competitive strategy and real estate development: Remarks to the 1989 Harvard Business School Real Estate Symposium 47 P a g e

48 Ratcliffe J., Stubbs M., and Shepherd M., 2002, Urban planning and real estate Development, 2 nd edition, Spon Press, USA and Canada Rojas Eduardo (ed.) 2010, Building cities: neighbourhood upgrading and urban quality of life, Inter- American Development Bank (IDB) Smith Rymond D., The role of greed on the ongoing global financial crisis, Journal of Human Values 16: 2 (2010): Stanfield D. (1996) Creation of land markets in transition countries implications for the institutions of land administration (web based) Thaler, RH (1980), Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization, 1, Tversky A. and D. Kahneman (1992): Advances in prospect theory: Cumulative representation of uncertainty, Journal of Risk and Uncertainty, 5, UN-HABITAT (2002), The Statute of the City- new tools for assuring the right to the city in Brazil, World Urban Forum, 29 April-5 May 2002, Nairobi Winrick Kenneth, Thoughts on Greed and Envy, The American Journal of Psychoanalysis, 2010, 70, World Bank, Working Paper No. 283 Vol. 1 (PP ) 48 P a g e

49 Chapter 3: The Impact of Urban Development Policies and Regulation on the Livelihood of the Urban Poor Samson Kassahun and Essays Shiferaw Introduction The pattern of urbanization in Ethiopia is more of indigenous with the unique historical context (Samson 2004:53) The history of urban development in Ethiopia elucidates a distinctive development that shaped the various socio-economic, political and cultural life of the society (Mammo 1994). It is obvious that the rugged terrain and mountainous nature of the country hindered urban development. The topography prohibited contact between people due to transportation and communications problems (Mesfin 1973). Consequently, Ethiopia entered the 20th century with an exceedingly poorly developed urban base (Samson 2004, 2008). The urban cities in Ethiopia are also experiencing unprecedented rates of urbanization growth, which is creating extensive spatial urban landscapes as occasioned by human settlements. Currently, there are 925 urban centers at different growth stages and the annual urban population growth rate of the country is estimated to be above 4.3%. This rate depicts that the population of urban areas is increasing by half a million people every year. Today, the population of urban centers is about 12 million and this comprises 16% of the total population of the country (MWUD, 2006). However, in the past decades and very likely in the next ones, the urbanization rate will be faster in Ethiopia than in the whole of Africa. According to Samson (2004:56) for instance, the growth rate between 1950 and 2000 was 2.3 and 1.2 for Ethiopia and the continent respectively implying a doubling time of 26 years for Ethiopia and 37 years for the continent. This fast growth rate couple with unmatched economic growth of the country would overwhelmingly contribute in the augmentation of the number of urban poor, which would be considered as urbanization of poverty (c.f. Haddad, Ruel and Garret 1999; Ravallion 2001), forcing the poor to live either in slum of contest for place for informal settlements (Samson, 2004). The government of has recognized both the role that urban economies can play in accelerating growth, as well as the need to address issues of deprivation within urban areas. Hence, in addressing the issues the government has developed different policies, strategies and regulations. In actual fact, political will is essential for developing and enforcing policies, strategies and regulations. Policies, strategies and regulations can be seen as control mechanisms for the greater good of the society. Generally, they may refer to a wide range of instruments and tool including legal and pseudo-legal instruments. Hence, it is hard to envisage any regulation that does not influence directly or indirectly livelihoods of the people specially the poor. In fact, neighbourhood effects models of urban poverty are used to identify the limitation of adaptation and resistance accounts of the action of the urban poor towards policies, strategies and regulations. Hence, in implementing any intervention in redevelopment of urban areas the importance of space for the inhabitants should be given a significant focus. Moving beyond the space-as-container ontology, space is conceptualized as a social construction that shapes social action and guides behaviour. Central to this constructionist framework the idea is that spatial boundaries, identities and meanings are negotiated, defined and produced through social interaction, social conflict and struggles between different groups. Hence, maintaining a full understanding of the actions of the urban poor, towards policies, strategies and regulations, requires recognition of the spatial nature of human agency. There is increasing evidence pointing towards the urbanization of poverty, and its deleterious impact on the quality of life, be it interpreted in terms of vulnerability, inadequate access to basic services, shelter or any 49 P a g e

50 other entitlements. There is however no doubt that the approach of the government towards the poor, their activities and specially, settlements has changed over the last two decades: from demolition of the settlements to the tolerance of the spatial encroachment, intercepted by evictions and resettlements. In Addis Ababa, where the situation is most volatile, the recent trend is to relocate the irregular settlements from the city center to the city periphery in the name of utilization of valuable land and for resource generation. In the process, these settlements of the poor at the new locations are regularized. In the face of the realities of the existence of the poor and their supportive role to the city economies, a propoor and pro-active development approach is imperative. The growing acceptance of decentralized governance practices demands a participatory process, where every inhabitant of a city is considered as a stakeholder in the development process, first as a voter and then as a tax payer and as a consumer. Policies, strategies, regulations and the socio-economic and spatial plans, therefore, have to address the concerns of the poor as well and create space for them to develop. An important factor that prevents the poor from emerging out of the poverty syndrome is the official approach to them, which is often iron-jacketed and in that context, policies and regulations become a handy tool to keep the poor outside the system. In a situation of general scarcity of resources, this practice of dumping the poor works out favorably for the socalled eligible sections of the society. These observations are more applicable, in the context of the poor neighborhoods, which are in the process of upgrading and where the urban system is not yet geared to the modern concepts of planning and management and information is cornered by a limited section of the society. Securing access to land for the urban poor is critical for poverty reduction, institution building, good governance at the local and national levels, and conflict prevention. Designing and implementing pro-poor land policies is therefore a precondition for building effective states, ensuring sustainable development, and realizing the Millennium Development Goals. Accordingly, this chapter focuses its attention on the distributive aspects of policies and regulations and discusses the issues in the context of the livelihood situations of the urban poor. As a case study, it examines the regulatory framework that is in place in selected sub-cities of Addis Ababa. Research Design The empirical evidence of the role of policies and regulations on the livelihood of the urban poor will be analyzed with both qualitative and quantitative methods. The rational of applying the two methods together is first due to the complex nature of the concept like livelihood of poor households. Second, integrating of complementary methodologies is a good strategy for reasons such as: enhancing data quality; elaborating or developing of analysis; providing richer detail. The application of the methodologies will be guides by previous research. The research has involved an exhaustive desk review of the literature focusing on those with land and urban development component. This includes many reports prepared by city administration as well as publications prepared by independent observers. The desk review highlights strengths and gaps in understanding on the research questions being addressed by the research, which informs the preparation of field research. Taking Addis Ababa as a case study, one sub-city has been selected for the study. Drawing on methodological best practice of previous studies on the impact of land and urban development regulations depending on the availability of data, fieldwork has been consisted of a balance of quantitative and qualitative research methods The research has assessed if urban development policies, strategies and regulations are or can address the livelihood of the urban by answering three questions: Do the urban development policies and regulati ons offer an enabling environment for local governments to check on the impact of the policies and regulations in the urban poor? Do examples exist where the livelihoods of the urban poor have been considered and what are the lessons learned? Was it successful: has it leaded to investments of all actors in the redevelopment? 50 P a g e

51 Literature Review Urban Space The growing body of literatures on space related to social life has witnessed an explosion of empirical research. For instance, the recent spatial turn in urban sociology has focused on the practices in which spatial arrangements functions as constitutive dimensions of social phenomena (Harvey, 1989; 1993; Zukin, 1991; 1995; Gottdiener, 1994; Isaac, 1997; Tickamyer, 2000). In understanding of social change, it is essential to grasp the space and socio-spatial relations. Despite the fact that there is still a growing disagreement among scholars on how space impacts social relations, there is an agreement to regard space as a means of production, an object of consumption, and a geographical site of social action (Samson, 2004) With this backdrop, this chapter used neighborhood effects models of urban poverty, to identify the limitation of adaptation and resistance accounts of the action of the urban poor towards urban redevelopment. Moving beyond the space as container ontology, space is conceptualized as a social construction that shapes social action and guides behavior. Central to this constructionist framework the idea is that spatial boundaries, identities and meanings are negotiated, defined and produced through social interaction, social conflict and struggles between different groups. We believe in any intervention of urban development and redevelopment maintaining a full understanding of the actions of the urban poor in its spatial nature warrants a significant recognition. In this regard, the seminal work of Anthony Giddens, Pierre Bourdieu and Michel Foucault represent recent attempts to refashion social theory to take into account the reflexive relationship between space and social action. In stressing the enabling and constraining aspects of social structure a central assumption of structuration theory Giddens (1989: 280) argues that we cannot speak about space without talking of the spatial attributes of a substantive phenomenon. Bourdieu (1997) developed a theoretical framework using the concepts habitus and field to highlight and explain the spatial and temporal attributes and structure. For Bourdien (1997), the creation of habitus and the ensemble of dispositions that orient action and perception transpire when people form specific codes of spatial performance through social situations. The concept field refers to situation where organized groups of actors produce place-specific forms of identity consciousness and knowledge. In the writing of Foucault (1977), the concept heterotopias refers to those oppositional spaces that form within relations of domination and subordination and serve as the birth place for political mobilization and revolution. Foucault (1984). Suggests that space can no longer be treated as the dead, fixed, un-dialectical and immobile, but must be seen as fundamental in any form of communal life and fundamental in any exercise of power. Urban Renewal and Community Development Community development is very much different form Urban Renewal. When, the former forces on a gentler approach emphasising on rehabilitation and preservation of the community, the latter is about cleaning and clearing the community and starting from a scratch (Levey 2006). The concept of community development has been around for more than four decades However, in the last two decades new terms have emerged to express similar connotations: - grassroots development, peoplecentred development, community or participatory approaches to development, and so on (Stone 1989, Samson, 2004). All approaches that claim to be community development can be accepted as legitimate contributions (Biddle 1966:12), regardless of the various definitions attached to the concept. Regarding the definition of community development, Denise and Harris (1990:7) observed: a variation in definition as those who profess to precise it. Most definitions of community development contain element that could be classified under a certain rational (Bhattacharayya 1995). Christenson and Robinson (1989:14), for instance, stated that the rational as to change economic, social, cultural, and and/or environmental situations. For Denise and Harris (1990:7), it is improvement of living conditions and way of life. 51 P a g e

52 In this point of observation, the growing body of literature in social science has identified several types of communities: community as a place, community as a relationship, and community as collective political power (Gusfield 1975; Heller 1989; Suttles 1972). For all of these types, there exist a process for improving the quality of community life as portrayed in such terms as community development, community building, and community organization. But when talk of urban renewal it is clears that we are thinking in terms of slum clearance. The desired end result of slum clearance included an improved social, cultural, and economic environment for the people, but the fact that people contribute to their environment and work within it to create what we call culture should be underpinned through public participation. Currently, it is commonly acknowledged that planning as being part of a process of social change that depends on the needs citizens and groups underpinned by their participation. With sustainability, planners have also redefined the reductivist notion of development as growth to include socio-ecological dimensions. This is a paradigm shift from positivist obsessions with technique and technological innovation (Ellul, 1967); and the conceptions of social exclusion. Spurred by a global consciousness that was lacking a couple of decades ago, recent writings of Hawken (2007), Shiva (2005), Massey (2007), and Korten (2006) have argued for balancing the social costs of development with the economic gains. Planning for sustainability has also made a significant impact on development theory by greening the agenda of development programs (Mestrum, 2003), and bringing into its fold as diverse subjects as transport systems (Newman, 1999), settlement patterns, labor, population, basic needs and human rights (Satterthwaite, 1997). Hence, to have a sustainable planning and development focus should be given on public participation and empowerment approach. People are the principal wealth of cities; they are both the object and the means of sustainable human development. Civic engagement implies that living together is not a passive exercise: in cities, people must actively contribute to the development of their city. Citizens, especially women, must be empowered to participate effectively in decision-making processes. The livelihood of the poor must be recognized and supported. Economically, socially and environmentally sustainable urban development can only be achieved with governance arrangements that can help to realize the economic potential of towns and cities, achieve social justice and welfare, and reduce the environmentally damaging effects of urban growth (Samson, 2008). Participatory process are becoming more and more embedded into planning and development process in order to provide for meaningful engagement and involvement of the community in all phases of decision making, implementation and monitoring. This way urban development become a tool for local democracy and inclusive governance and is enabled to respond creatively the expressed needs of the community rather than regulating them. Urban Poverty and Livelihoods The statistics for urban poverty vary depending on its definition. UNCHS (1991) reckons that the urban poor now represent 49% of the urban population in developing countries, and it is about 1.1 billion globally. Most countries have their own definitions, based on calorie intake, income, or access to a basket of essential goods (Getachew and Samson, 2010). Internationally, the definition of poverty is changing. It started off by defining an income level (e.g. $1 per capita per day), but many have pointed out that in the urban context, such a definition is totally inadequate. It has since been broadened to include health, nutrition, literacy and service indicators (Samson, K. 2008; UNDP, 1997). And some now extend it to include the lack of voice and choice of the poor (Samson, K, 2008). By and large urban poverty cannot be adequately addressed by single sector projects or programmes. Rather, it requires holistic or integrated approaches. 52 P a g e

53 A livelihoods approach offers the potential to look into poverty in a much more holistic manner. Livelihood approach takes a holistic view of the poor, their assets and vulnerabilities. It has the advantage of putting poor people at the center, and to build on their capabilities in terms of their assets rather than on their needs. According Ashley and Carney (1999), sustainable livelihood approach takes people a center for development and it tries to be responsive and multi-level. Chambers and Conway (1992, Pp.7-8) defined livelihoods as capabilities, assets and activities required for a means of living. For a household to be able to cope with a certain shock and recover uses its existing assets, and enhance its capabilities (Roe 1998). Most of the urban poor are confronted by failed policies; inappropriate regulatory frameworks and administrative procedures; dysfunctional land markets; unresponsive financial systems; bad governance; corruption; and a fundamental lack of political will (Lowe and Schilderman, 2001). Each of these failures compounds the problems faced by urban poor communities and denies them the opportunity to optimize the benefits of urbanization, and also constrains the substantial potential for human development presented by urban life and the achievement of sustainable livelihoods 38. The operational framework of the Sustainable Livelihood (SL) approach brings together various actors, including local government and the communities in decision-making, and policy formulation and implementation. The SL concept and methodology seeks to bridge the gap between macro policies and micro realities. By employing both participatory and policy tools, the SL approach underlines the interlinkages between livelihood systems at the micro level and the macro policies which impact on these livelihoods (UNDP, 1999). Livelihoods analysis is an important component within regulatory reform. A body of literature support that the Sustainable Livelihood Framework provides a useful conceptual base for understanding urban poverty and the situation of people living in poverty in urban settlements, and is an effective tool for analyzing the impact of regulations on their livelihoods (McLeod 2001; Lowe and Schilderman, 2001). On the other hand, livelihoods are shaped by policies, institutions and processes (PIPs). They determine options for livelihood strategies, as well as access to decision-making bodies and external sources of influence. Policies, Institutions and Processes Policies, Institutions and Processes (PIPs) are the social and institutional context within which individuals and households develop and adapt livelihood strategies. Their impact may be enabling or inhibiting, creating or constraining livelihood options and outcomes. PIPs encompass a range of issues such as participation, power and authority, governance, laws, public service delivery, market mechanisms and social relations (Bingen, 2000). The legislation, regulations, norms, standards and procedures that govern housing and urban development are an integral part of the PIPs. The regulatory frameworks pertaining to shelter are an important part of the PIPs. Although key policy papers, including the Habitat Agenda, do argue for enabling PIPs and most governments have committed themselves to it, practice is often different (Payne 2000). There appear to be important bottlenecks to change, including vested interests and a lack of capacity. Policies on tenure, credit, planning continues to set high thresholds which favor the rich over the poor (Payne, 2000; Tipple, 2001). Institutions, including ownership and inheritance rights, traditions and markets often favor men over women and tend to increase female vulnerability (Lowe and Schilderman, 2001). And processes are often complicated and costly, which favor the better offs. Many of these prevent the urban poor of making the most of their assets (Lall, 2001; Lowe and Schilderman, 2001; Payne 2001; Tipple, 2001). 38 A livelihood asset includes human capital, natural capital, financial capital, social capital and physical capital. People may have access to all or just some of these assets. An SL approach seeks to build on the asset to which people have access, as well as their strengths and resourcefulness, rather than emphasizing need and weakness. 53 P a g e

54 Institutions Organizations structures, customs, and laws are commonly used to describe institutions (Commons 1934, North 1994). Institutions are also considered as the mechanisms by which processes function; without them, legislation does not exist. Individuals and collective societies enforce norms, enable markets to work, create the reach out from central government into the wider public and private domain (North s 1990). In theory, such structures are means by which people can be informed of government policies, ways of working and understanding the rights of individuals (North 1994). Infrequently poor people are not in a situation to be given much legitimacy by government institutions. Rather there is a danger for elite to control the institutions and processes with little regard to the needs of people in poverty (Samson 2004). The predominance of the professional and political elite over the formulation and enforcement of legislation is well recorded. This relates to the flexibility and discretion which is built into the way the system works (De Soto, 1989). The rules of the game impact the manner how people behave within organizations North 1990). Social customs and cultural norms influence formal institutions, the way individuals operate and the practices which are embedded in the way things get done (see Acemoglu et al. 2002; Easterly 2001; Rodrik et al. 2004; Acemoglu and Johnson 2005; 2006; Tabellini 2009.) The interface between formal and informal institutions is significant for the urban poor in their livelihood. Policies Policies are rules defined by the governmental authorities that express an intention to influence, alter, regulate the individual and collective behavior (see Altman and Petkus, 1994; Anderson, 1997; Brinkerhoff and Crosby, 2002; Dye, 1992; Horowitz, 1989; Lasswell, 1951; Sutton, 1999; Mooij and de Vos, 2003.) A range of institutions gets involved in policy development and implementation. Policies may be developed at the macro-level, providing a framework within which local instruments may be set. Urban development authorities, specialist, line departments and utilities as well as municipalities all have policy formulation and implementation responsibilities. However, the impact of the policies on the livelihood options and outcomes of the urban poor may be enabling or inhibiting, creating or constraining. Hence, analysing the existing policies with the livelihood approach is imperative to check whether the policies have incorporated a range of issues such as participation, power and authority, governance, laws, public service delivery and social relations, since policies are key determinants of livelihoods. Processes The process how public institutions are rendering services to the citizen is another important determinant of livelihoods. Currently there is a change towards improving the efficiency and effectiveness in the process and performance of public sector organizations. This improvement is very essential for the urban poor to be able since their livelihood is very much dependent in it. The question of roles, responsibilities, rights and relations is central in establishing a clear understanding of what each stakeholder group can and should do. Interventions in this arena are highly contentious since governance comprises the processes which determine how power is exercised, whether citizens have a voice and how decisions about issues of public concern are arrived at. How Regulations Affect the Development of Livelihoods Assets by the Urban Poor In this section we will try to analyse how regulation which comprises institutions, polices and processes may be implicated in both the destruction of livelihoods as well as their progressive support in the case of Addis Ababa. The livelihood asset in the analysis includes human capital, natural capital, financial capital, social capital and physical capital. 54 P a g e

55 Physical capital Housing and infrastructure are a physical capital. Security of tenure is important to simulate investment in better housing and infrastructure. Without such security, people remain at risk of eviction or demolition. Whereas in the case study area the majority of the dwellers do not have a title deed and are Kebele owned. The type of tenure is not recorded as black & white, or legal or illegal. There are different kinds of tenure systems like Kebele owned ( the lowest hierarchy of government administration), RHA (Rental Housing Agency), Title deed previous to Proclamation 47/67, Sened Alba (holdings without paying bills or having title deeds, or bought from peasants), Freehold & Lease ( AA Municipality Security of Tenure Maual,2002). This scenario even makes the tenure system more complex & unfriendly. Lately the government is legalizing the Sened Albas through a complex process of checking the buildings on site & and the exact boundary of the site. Our study area did not benefit from this act because already the area is isolated for renewal. One common method to address the tenure security system is temporary tenure system. The directive provides temporary tenure security but majorly cafes on parks benefit from this act. Most regulations do not favour incremental development or transformations. The urban poor involved in building their own dwelling tend to do so over a lengthy period, in little steps of extensions and improvements. This is partly to do with the fact that it is difficult for them to access housing finance, and perhaps a strategy to avoid risks. Many regulations and housing interventions have failed to take this fact on board. The Addis Ababa Municipality Building Permit Regulation separated a clause on building step by step but the clause states a minimum height of the height regulation to start to construct. This clause works even for multi-story buildings not for residential buildings. Apart from this, the deadline for completing construction should be abided. In this sense, the clause puts every activity in a straight jacket. The problem here is even worse, because the majority of the households, which are Kebele houses, are not allowed to make a major change to their houses let alone construct another on site. So, dwellers in general do not have the opportunity to change their houses even if they fell secure in the area. Whilst regulations focus on infrastructure, it should be on services. In the urban context, infrastructure is seen as part of the physical asset base. Yet it is increasingly seen as desirable for infrastructure to be defined as services rather than as hardware such as water pipes. In the case study area there are limited services (2 private clinics, 1 Health post, no elementary school, etc). These limited services including limited access to finance did not help to render a defacto security and people are not improving their dwellings as a result. Regulations often restrict the choice of materials and technologies. Many do specify the use of modern, industrialised, and often imported materials. This is costly and does little to boost the local economy. Alternatives are often available and sometimes widely used in informal settlements, but the prevailing regulations do not formally accept them. Rather than specifying what materials or technologies may be used legally, regulations should specify their performance. This then allows alternative materials and technologies which can show that they meet such performance, to be used legally. In the case of Addis Ababa, the materials that dwellings use indicated in the Construction Permit Directive include common materials like Hollow Concrete Blok (HCB), stone, Corrugated Iron Sheet (CIS), and other industrialized materials. The materials are defined by type and name not by their performance. Hence, dwellings are not able to use locally available materials to improve their houses. As stated above, the majority of the households which are kebele houses do not have the option making major changes to their dwellings. This is the first major obstacle, and then comes the usage of construction materials. Some affordable alternatives are not standardised. Some innovative materials or technologies do not have a standard yet or may not be standardised in some countries. This can exclude them from legal use. Moreover, the lack of standardisation also makes people worry about their quality which reduces their market. The common locally used material in Addis Ababa for walls of buildings is a mud block but it is not yet standardized and educational institutions are not making any kind of experiment to improve the quality of the material. The curriculum of educational institutions is not geared to solve local problems. It is 55 P a g e

56 recently that efforts are being exerted to make curricula research oriented, the fruits of which are not yet perceived. The Ethiopian Standardization Agency do not as such has the capacity to handle such cases because the standard it controls at the country level is overwhelming. It might be a pretty hard job for such a young and growing institution. Natural capital The Sustainable Livelihood theory and practice developed in the natural resources sector where the significance of natural capital is immediately evident in poverty reduction. In this context, land is a key asset. There is some debate whether land in the urban context ought to be regarded as natural capital, or should be seen as physical capital. This is particularly the case when it comes as already serviced plots. Urban land is a scarce resource. Hence the tendency of the Addis Ababa administration is to keep plot sizes to a minimum. This is not in the interest of some of the urban poor who might want a bit more land to pursue some livelihood options (including urban agriculture or livestock), but that could prevent others from getting access to any land. The case study revealed that dwellers don not have access to land & housing finance system is too costly. The only option to get land is through auction. A minimum amount of land (150 m 2 ) is set for residential buildings. The only body which is responsible for allocating land is the board of AA Municipality at the central level. This board only allocates land for developer s not residential buildings. After the huge corruption during the Transitional City Administration, the city Administration is obliged not to address the quest for a residential plot. This situation aggravated the scarcity of land and opened a door for speculators. Another important office, Land bank & urban renewal, is responsible for land banking and renewal project undergoing in the city of Addis Ababa. The project office, though it is at its infancy, could not meet the demand for land. The project office recently engaged itself in a complex process of reclaiming illegal land. Open space is under pressure. Access to open space is shown to be important in safeguarding well-being, play areas for children or communal gatherings are beneficial to livelihood outcomes, but the intrinsic value of urban land means poor people often loose in the power play for ownership and use of such valuable community assets. In the study area there is a very limited open area which could serve as a playground or community gathering. The problem emanates from the planning itself. These areas at the outset are allocated as a renewal site therefore the City Administration is not giving proper attention because it going to be cleared any time in the future. People then don t have a decent neighbourhood to live in until the Local Development Plan is implemented even. There should be at least some intermediary measure. The urban environment. The loss of open space and excessive population densities in study area aggravated the situation further. Houses abut one to the other; it is common to find four or more households in a single compound. The area can be said suffocated with a huge density. The environmental agenda may be at odds with the livelihoods of the urban poor. The increasing strength of the environmental entrance when talking about sustainable development means that the social or economic dimensions, which arguably have a more direct impact on those living in poverty, are given less priority. In the study area attention is given for renewal not improving the lives of these poor households. As mentioned above the agenda is crystal clear, clearing of the site and allocating it to developers. This agenda overran any concern of the environment of the urban poor. There is no any intermediate decisions made to improve the living conditions through for instance upgrading. Household energy issues. Regulations most of the time pay little attention to household energy. Yet it is an important factor; on average, a household uses as much energy for cooking as it takes to produce its entire dwelling. In the study are urban residents still use traditional fuels, such as wood and particularly charcoal, which are being supplied from ever further away, at great cost to the environment. Current building regulation. Building codes and standards often prescribe the use of modern industrialised materials, such as cement, which is currently very expensive. As the demand for building materials 56 P a g e

57 continues to grow, cities act as a drain on the surrounding environment. The choice of building materials is significant not only in terms of impact on the natural resource base, but also on livelihoods of the poor by making it difficult to improve their households with locally made materials which may have a good performance like the industrially produced building materials. Financial capital Current regulation. The existing regulation is not for the urban poor to build legally. Since regulations do not reflect current realities; revisions which have sought to redress the situation have the effect of bringing down the cost of standard housing. In Addis Ababa the only option the poor have is the condominium housing which by itself is very expensive. To acquire land is unthinkable as a poor household. The only people who have access to land are developers which again takes extended time & the decision making body is not yet decentralized. The quest for residential plot is not yet answered but there are promises that housing associations could get a plot for residential buildings. Regulation prevents the poor from generating income in residential areas. Home based enterprises are particularly important for women. Clearly, there is a case to be made to look at planning and zoning regulations from the angle of the livelihoods of all concerned. The Construction Permit Regulation is strict in this sense that is not allowed to construct a building with a different use from the assigned one. Most of the time the residential buildings are not marked as mixed so this will shut all the doors of gaining income. In the study area Local Development Plan is already prepared and the poor households which are going to be accommodated are not allowed to do business in these residential quarters. This is strictly set in the contract of the condominium houses. Another fact may be the design itself which is not conducive for such purposes. The ground levels of these condominium houses are intended for business but they are not going to be sold for the poor households but transferred for those who are capable through an auction. Human capital Regulations make good use of poor men and women s indigenous capacities. Human capital is perhaps the most critical asset which poor people have at their disposal; their ability to sell their labour is can be considered as key in income generation. Similarly the use of their own labour in self-help can bring the cost of housing down. The human asset base can be enhanced if regulations permit and promote the use of technologies poor people, artisans and small-scale producers in their midst are most familiar with. In Addis Ababa most of the housing programs involve small and micro enterprises and different graded contractors, consultants. The housing program demands skilled manpower at different levels in the hierarchy making it difficult for the urban poor to sell their labour. The technology involved is not as such easy to engage these poor households. One good practice from the previously demolished site, Lideta area, is to engage households in a demolishing activity but it is short term and it takes few months to clear the site. There is no as such an option to engage the poor households of the renewal site in the construction of the condominiums which may be a means of gaining income. Overcrowding does have a negative impact on human assets. It affects the health and psychological wellbeing of residents and can lead to violence. That is why many regulations try to establish a minimum amount of space per person, or minimum room sizes. The building permit regulation of AA demands a minimum area of 2.6 m 2 for any room which is incomparable to these poor households. On average 4 people are living in a 1m 2 floors and it is common to see many families living in a single compound. These houses which come in a single compound do not maintain a proper distance between themselves that lighting and ventilation problems are common. Social capital Housing and settlement upgrading can build social capital. The fact that neighbours are coming together to tackle a common need may lead to the emergence and capacity building of CBOs, to empowerment and to 57 P a g e

58 subsequent other benefits. This is often easier in an existing informal settlement, which is perhaps scheduled for upgrading, than in a situation where relative strangers are constructing in a newly planned settlement. Building and planning regulations may affect the development of social capital. According to the Directive on Clearing Land for Renewal, Compensation, and Land Substitution, there is one major option for the majority kebele owned houses dweller to go to the option of getting access to the newly constructed Condominiums at different locations. This option will give the inhabitants no choice but to be detached with their exiting social network. In the study area the majority of the respondents revealed that they are engaged in a social group, which is considered to be a social capital. To such localities where people use their social network to cope with severe living conditions is a great loss. The directive does have a compensation mechanism to such losses. Conclusions In this chapter, we have tried to advance understanding of community development by moving beyond the space as container ontology and conceptualizing it as social construction that shapes social action and guides behaviours. With this frame work we have tried to analyse the impact of regulation encompassing Policies, Institutions and Processes on the livelihood of the urban poor. Policies Institutions and Processes (PIPs) are the social and institutional context within which individuals and households develop and adapt livelihood strategies. The impact may be enabling or inhibiting, creating or constraining livelihood options and outcomes. PIP encompasses a range of issues such as participation, power and authority, governance, laws, public service delivery and social relations. PIPs also directly influence the vulnerability context and are influenced by it. In assessing the impact of PIP frameworks on the improvement of low-income settlements as an effective mechanism in poverty reduction, local authorities need to: Recognize and understand the diversity of stakeholders in the community, who may have different or conflicting stakes in settlement development. This makes it difficult to change the regulations. Understand the livelihood strategies and priorities of lowincome settlement dwellers, the linkages between housing, infrastructure, social and human assets, vulnerability and income generating activities whilst realizing what intra and inter household differences exist. This should include a real appreciation of how PIPs result in negative impacts, constrain poor people s options as well as offer potential benefits in support of poor women and men s livelihood priorities. Any policy, institution and process focusing on community development should be underpinned by the context of building or strengthening solidarity, and then practitioners must be concerned about the meaning that people give to places, people, and events. Of course, symbolic interactionism is about symbols. As Blumer (1969) gave this name to the theory because it emphasized that human interaction is symbolic rather than a mechanical pattern of stimulus and interaction. Space where the poor are living is with full of symbolic interaction, which has a great impact on their livelihoods. For symbolic interactionists, the meaning of a situation is not fixed but is constructed by participants as they anticipate the responses of others. The exiting practices in Ethiopia in general and in the study area (Addis Ababa) in particular indicated that in general the poor are with limited or no asset. Asset status common to households are labour force availability and neighbourhood associations (which is an indication of strong social capital). Lack of financial assets for most of the households in the study area was also found to be a common characteristic. In terms of livelihood, casual/piece work was the dominant form of productive activity for most of the households. This is followed by self-business and by wage employment. For those engaged in selfbusiness, houses are the main business places indicating the importance of home-based activities. Most of the time home based businesses are run by owners showing the low degree of capacity to hire others. Income from such business tends to be very low displaying weak signs of prosperity. 58 P a g e

59 In terms of policy, institutions and process, in light of the national urban development policy, there is an encouraging implementation of micro and small scale enterprise development, integrated housing programme and provision of the land. However, PIPs have tied up with some implementation problems. The policies have shown some linkages with the livelihood requirements. In particular, the promotion of small and micro enterprises and the integrated housing programme have the potential of addressing livelihood requirements related to job creation, wealth transferring and housing needs. On the other hand, a number of pointers indicate that there are gaps between the livelihood requirement and existing policies, Institutions and Processes. These gaps pertain to lack regulations that address the assets of the poor, the vulnerabilities of the poor and the differential status of households. Moreover, the community participation practice in Addis Ababa where the renovation projects has taken place the PIPs did not work towards addressing the process of community participation to enhancing households asset, local economic development, home-based activities, causal activities, housing affordability, urban safety nets and overcoming city level institutional capacity etc. Rather, citizen in the study areas were complaining about the different issues such as consultations on the program and the site to be relocated, compensations etc. For instance, majority of the respondents claimed that there was not enough consultation with the community. Respondent also claimed that no government representatives visited the site at the time of their relocation. Moreover, they reported that they were not given legal support despite their concern that it was needed. Relocated residents share a common feeling that adequate and reasonable eviction notice was not given to them. This is because the compensation only covers the value of the house at the time of construction and only acknowledges the roofing, walls and other permanent building installations. The compensation did not consider the investment occupants have put into the internal decoration of their houses or the land on which it sits. The compensation has certainly not been sufficient to build a comparable house in another location. And they complained that they have not found relocation easy. They had been promised support by the government in moving their belongings from one site to the next but were not given it. Most importantly, there situations of co-dwellers has never been taken into consideration for any kinds of integrations. Reference Acemoglu, D., and S. Johnson. (2005). Unbundling Institutions, Journal of Political Economy, 113(5): Acemoglu, D., S. Johnson, and J. Robinson. (2002). Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution, The Quarterly Journal of Economics, 117(4): Altman, J., and E. Petkus. (1994). Toward a Stakeholder-based Policy Process: An Application of the Social Marketing Perspective to Environmental Policy Development. Policy Sciences 27: Anderson, J. (1997). Public Policy Making. New York: Holt, Rinehart. Ashley, C. and Carney, D (1999). Sustainable Livelihoods: Lessons from Early Experience, Department of International Development, London Bhattacharayya, Jnanabrata "Solidarity and Agency: Rethinking Community Development." Human organization 54: Biddle, William "The "Fuzziness" of Definition of Community Development." Community Development Journal 1:5-12. BINGEN, J. (2000) Institutions and Sustainable Livelihoods Blumer, H. (1969). Symbolic Interactionism: Perspective and Methods. New York: Prentice- Hall. Bourdieu, P. (1997). Outline of theory of practice. Cambridge University Press. Brinkerhoff, D., and B. Crosby. (2002). Managing Policy Reform: Concepts and Tools for Decision-Makers in Developing and Transitioning Countries. Bloomfield, CT: 59 P a g e

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63 Chapter 4: Urban dynamics for development in Ethiopia: The case study of Debremarkos town (DMT) and its hinterland production linkages. Berhanu Zeleke Gobaw Introduction Poverty in Africa, mainly in sub-sahara region, persists as a complex and an extreme socio economic crisis that emanates from a number of causes. According to Todaro and Smith (2009), some of the causes for poverty in this continent are related to poor government policy-strategies, and coordination failure for key investment sectors, inefficient state-owned enterprises and too much government intervention and regulation without minimum market-friendly approach as well as lack of concern with promoting valueadded export growth. Therefore, underdevelopment which is manifested by poverty and inequality can be concluded as internally-induced problems that has in turn created bad equilibrium (vicious circle of poverty) in LDCs. The Federal Democratic Republic of Ethiopia is a land-locked country in the horn of Africa, covering an area of 437,600 square miles and it is the most populous country in Africa next to Nigeria. According to UN_Habitat (2007:3), the country has a GDP per capita...of about USD 100, Ethiopia is one of the poorest and most heavily indebted countries of the world. Agriculture dominates the Ethiopian economy for accounting about 85% of the country s population livelihood and employment, 45% of GDP, 33% of total exports (70.2% of merchandised export earnings, more than 80% agricultural output) this subsistence farming. This agricultural performance fluctuates considerably with changes in weather conditions. For instance, the most recent drought (in 2003) affected an estimated 14.3 million people and decline of about 13% in the value added to GDP by this backbone sector. Ethiopia has also import agricultural outputs ( like cereals 13.6%) and industrial goods (close to 75% of the total imports of which 33.4% for domestic industrial production inputs) that indicates the opportunity of import substitution industrial development (Ayele, 2006; Alemayehu: 2007; UN-Habitat. 2007). Ethiopia currently has one of the fastest rates of urban growth (about 5%) in the world though the country is one of the least urbanized nations of Africa (about 16%). This national urban growth is manifested by the proliferation of the number of small towns (about 924 in 2004). However, like any other African urban centres, these explosive urban centres have not given focus in the national development paradigm. As a result, they are presently suffering from socio-economic and environmental problems including widening inequality, deepening poverty, rising unemployment, homelessness, poor physical and social infrastructures. These problems are shared with their hinterlands (UN-Habitat, 2007). The existing light industries in the country (such as textile and leather, food products and beverage, tobacco products, manufacture of wood and its products, paper manufacture, chemicals, rubber and plastic products, non-metalic and metallic products, machinery and equipment) are directly or indirectly agro-processing and have backward and forward linkages with agriculture. However, the existing small and infant industrial sector of the country imports a lot of its inputs (33.4% from the total imports) and appear to be uncompetitive in local and (inter)national markets. Inter-industrial agglomeration and linkages are also very low and the potential manufacturing production is underutilized. In the same way, rural development (mainly) agriculture, which includes broad primary economic activities including mining, is subsistence that could not complement with agro-industries. The use of modern inputs and technologies (pumps, sprays, repair service, fertilizers, pesticides, irrigation, and selected seeds) in agriculture is very minimal (Tegegne, 2007; Alemayehu, 2007). This indicates that there need be URPLs that this research investigated for complementary and reinforcing key investments of the two sectors; agriculture and industry. 63 P a g e

64 Many scholars (Tegegne, 2005 and 2007, Asefa, 2007) claims that weak and loose urban-rural synergy in national development is mainly caused by lack of knowledge for URPLs in the country to formulate appropriate policy-plan and strategies. Consequently, the existing potential industrial and agricultural development has not played /will not play their role in reinforcing and complementary backward and forward linkages. The aim of this study is to investigate ways how to transform vicious circle inter-sectoral URPLs and key investments to virtuous circle URPLs in order to bring sustainable regional and national development by informing policy-makers and development consultants. To achieve this aim, the study is organized in six sections. The subsequent section gives the theoretical debates and analytical framework of URPLs. Section two articulates the selected methodologies and study site. Section three spells out lessons and arguments of literature review. Section four deals the results and discussions of data gathered from the field survey. Section five highlights the opportunities/ potentials and challenges for URPLs and the last section indicates conclusion and policy implications. Theoretical controversy and analytical framework for URPLs The nexus between rural areas and urban centres is one of the current debatable issues in development. This study is based on the theory of the contemporary development and underdevelopment theory; mainly coordination failure as well as the structural change model. The theoretical debate of URPLs can be seen on two dichotomy debates (Douglas, 2006; Tacoli, 2003): A. Rural-biased (Agricultural fundamentalism) adherents argue that in the initial stage of development when per capita incomes are low, agriculture alone can serve as an instrument for overall development. Increased agricultural productivity is a prerequisite to develop industrialization and other non-agricultural activities. Irz et al.2001 (in Momen, 2006) and Hess and Ross (1997) argue that agriculture is the key to overall development and a precondition for stimulating non-agricultural activities. It provides food and raw material to the urban sector and stimulates demand for industrial and urban development. Therefore, least developed countries (LDCs) need to follow policy-strategy of agricultural demand-led industrialization (ADLI). This is because investment on agricultural production would energize other major sectors in the economy and increase the demand for agricultural inputs. Some other scholars (Bagachwa and Stewart,1992) argue that rural industrialization has many advantages than urban industrialization such as spreading more off-farm jobs and egalitarian income opportunities for poverty reduction, better regional balance and increasing agricultural productivity and outputs for virtuous circle of agriculture and nonagriculture mutual linkages. B. Urban biased (Growth pole) development model explains that the industrial development in selected key sites or major urban centres can bring development through spill over and trickledown effects. Central place theory, growth pole model and core-periphery model all suggest an inherent interdependence in the core-periphery relationship in development. Growth pole adherents believe that rural development is dependent on urban development and industrialization. As a result, they realize that industrial development at specific urban sites needs to be given great emphasis for its cumulative causation and multiplier effect of a regional and national development (Waugh, 2009). Ethiopia development policy-plan and debates Historical development policy-plan of Ethiopia is biased to either rural area (agricultural development paradigm) or urban centre-growth pole model. Changes in government have not been accompanied by alteration of development policy-plan in Ethiopia. Policy-plan in the country has loose and weak URPLs balanced spatial and sectoral development policy-plan since the first development planning in 1957 (Asefa, 2007; Ayele, 2006; Alemayehu, 2007; Tegegn, 2005). The development policy of each government can shortly be summarized as follow: 1. Development policy-plan during the Imperial era ( ): formulated three development plans. The first five year plan ( ) was infrastructures, manufacturing and urbanization similar to growth pole 64 P a g e

65 theory which gave little attention to the agricultural and rural sectors development. The second development plan ( ) gave priority to commercial agriculture (mainly cash crops: coffee, Sugar cane, cotton and some tobacco). The majority of small scale agriculture, poor peasants and the rural development in general were ignored. The third development plan ( ) was also focused on rural development of both commercial and small scale agriculture with less emphasis to urban and industrial development (Asefa 2007; Ayele, 2006). 2. Development policy-plan during Ethiopian peoples democratic republic government (EPDRG/ junta or Derg; ) Development policy-plan and strategies were based on Marxist philosophy (socialism). Under this rule, the national economy suffered from ill-conceived policy measures which were designed to steer and control the socio-economic and political developments in the country such as nationalization of urban and rural land, rental housing, major manufacturing industries, banks, insurances, leading business firms and agricultural enterprise. With recurrent drought, heavy hands of the government intervention and the biased rural development policy made both industrial and agricultural sectors in problem. The development policy of agriculture was based on state and cooperative farms. As a result, the contribution of small-scale industries was nil or zero output to GDP at this time (Ayele, 2006, Assefa, 2007, UN-Habitat, 2007). 3. Ethiopian People s Republic and democratic front (EPRDF since 1991) has theoretically undergoing market-oriented reforms of the previous rural-biased and socialist philosophy of development policy. However, the underlying fundamentals of the previous government s rural-biased development policy-plan and strategies with nationalization and possession of private properties are continued and made the basis of national development of the current government which argues that the agricultural sector (predominantly agrarian nature of the national economy) would support all other sectors and industrialization overall development policy-strategy of the country is guided by Agricultural development led to industrialization, ADLI. The government argued that rural and agricultural development is the basis and the guiding principle for the realization and implementation of the country s overall and accelerated development; it enables to use extensive available factors of production (labour and land) for the provision of most Ethiopians and it will also spur development and favourable environment to non-agricultural sectors through its strong forward and backward linkages (MoFED, 2006). The two recently strategies of Plan for accelerated and sustainable development to end poverty (PASDEP) and sustainable development and poverty reduction program (SDPRP-1) did not even focus on the gap of ADLI in the period between 2005/6-2009/10. These strategies contain the issue of broad and holistic development approach of URLs and complementary key sectors as minor and elementary sub-topic (MoFED 39, 2006; Asefa, 2007; Ayele, 2006). As a result, the dichotomy of rural area and urban centres has continued and poverty reduction has remained the declared core objective though theoretically, the government currently pursues a pro-poor growth strategy for vertical equity in order to distribute the benefits of development. The urban development and its integration was led without a clear urban development policy in Ethiopia and in 2005, the first national urban development policy has been declared with many principles though the national urban development policy has not made any departure from the general path of ADLI. As regarding urban-rural linkages, agro-processing and other industrial activities and linkages or complementarities, one more policy gap remains to be filled (UN-Habitate, 2007). Many scholars (Tegegne 2005 & 2007; Gete, 2007; Leeuwen 2010; Assefa, 2007) claim that ADLI encourages and aims industrialization and urbanization as derivative process from the development of agriculture and the present small holding subsistence agriculture without having land ownership for collateral and other mortgaged finance will not develop into commercial agriculture but agricultural sector would be greatly promoted in the presence of vibrant manufacturing and service sectors that provide forward and backward linkages for agriculture. Thus, the rural biased development policy-plan once again in different governments has resulted in perpetuating poverty, serious damage to rural environment and pollution, declining agricultural MoFED 39 Ministry of Finance and Economic Development 65 P a g e

66 productivity, migration and unemployment, lack of income and livelihood diversification. In addition, urban centres could not provide manufactured goods and services or facilities for its hinterlands and the hinterlands in turn have not produced enough natural resources-based products (such as food, raw material) for the urban economic base in Ethiopia. Based on the macro development policy of Ethiopia, the Amhara regional state has designed six growth corridors for the coming six year rural development plan ( ) on the basis of watershed management. These growth corridors are: Lake Tana watershed; East Amhara watershed; Middle Amhara watershed; Tekeze river watershed; Southern Amhara watershed and North Amhara watershed. This development plan has no focus on the uses and linkages of urban centres and industrial development. As a result of mosaic and rural development paradigm in national and regional levels, the Amhara National Regional State Industry and Urban Development Bureau (ANRSIUDB) is preparing its own different development master plan by inviting bidders in 2010 different from the six growth corridors of the regional development plan of figure-1 (ANRSIUDB, 2010). This implies that different sectors in the region (and the country at large) have no any coordination on the same development area and goal. This sectoral and institutional coordination failure is due to lack of knowledge and inappropriate and biased policy-strategy of the country (Tegegne, 2005). Todaro and Smith (2009) argue that government development policy and institutional settings are much more powerful in addressing problems of development and that is why a bad policy today leads to extreme poverty and vicious circle for years. In short, the very long and historical biased development policy-plans and strategies with lack of integrative institutional settings due to the gap of knowledge on coordinating key investments have been some discouraging cases of success in each of the regimes and so far none of the government breaks vicious circle of poverty in Ethiopia. Hence, poverty is perpetuated and/or aggravated in Ethiopia and the overall development record makes Ethiopia one of the least developed countries in Africa and in the world. In the proceeding section, we could see how the problems of biased development paradigm are serious resulting in back equilibrium. Criticisms on the biased development paradigms There are many biased models and theories of development. For example, the core-periphery model claims that the core or urban centre forms the most prosperous and developed part of a region as well as a country and it s trickledown and spill over effects could bring little development for its hinterland. Hence, places towards the periphery become increasingly poorer by backwash effects of the core. In a global context, more developed countries (MDCs) can be the cores and the least developed countries (LDCs) as periphery (Waugh, 2000). Waugh (2000) claims that inequalities were likely to develop between regions and countries due to growth pole development. Myrdal s model of cumulative causation shows how growth pole model can create regional disparity by backwash effects. Myrdal argues that an establishment of a firm in an area would create more jobs in the service sector and construction industries as well as attracting more firms linked to the original industry. Then, there will be an influx of migrants, entrepreneurs, capital, new ideas/innovations and technologies to the growth pole. As a result, other surrounding regions or peripheries could be affected by this backwash effect of the core. Momen (2006) also argues that the dichotomy of urban and rural in development does not fit reality. It is not also an easy fact to separate linkages of farm and non-farm, flows of people and goods and provision of services because empirically households are multi-sectoral and multi-spatial (straddling for survival and/or accumulation) and inter-settlement dependencies. Leeuwen (2010) also claims that focusing separately on agricultural productivity and industrial production resulted in a severe damage to the rural environment and landscape. The problems of biased rural-oriented development policy in Europe, the recent agricultural policies recognize integrated, multi-sectoral and multi-functionality of agricultural development. Rigg (2006) on his side argues that agricultural strategy which assumes rural households as labour-rich and labour-intensive for agricultural production may misguide development. This is because for many 66 P a g e

67 individuals and households, agriculture needs to include factors that lie outside agriculture and may be beyond their villages. In the past, rural poverty was a function of agrarian deficiencies (lack of land and capital, low level of productivity and poor physical resources) and its solutions in policy terms were also land reform, cheap credit, development and provision of suitable technologies (irrigation). However, the current agricultural problems are complex and would be solved by using integrated approach of agricultural and non-agricultural sectors and activities of people. Sheng (2004) also claims that professionals (policy-makers, urban planners and rural development planners) often do not take rural-urban production linkages into account. For example, urban planners concentrate on the development of the urban areas without due attention to its impact on rural development, while rural development planners tend to ignore the urban areas, as if rural areas exist in isolation. Moreover, the administrative dichotomy of urban centres and rural areas results in lack of spatial and development coordination at cross purposes. Recognition of the URPLs by policy-makers is becoming all the more important in the light of the ongoing decentralization of government functions in many countries. In conclusion, critics of biased development models or approaches could show that both rural biased development and growth pole perspective underlie the need to have urban-rural linkages and key sectors interdependence investments. Supporting the critics of biased development paradigm, the researcher wants to argue that it would be possible to transform vicious circle of poverty to virtuous circle linkages of subregional and national productions and key investments in order to bring sustainable development. Therefore, the author proposed analytical framework that could support to investigate existing URPLs and to explore the potential virtuous circle URPLs in order to bring sustainable regional and national development (figure-4.2). 67 P a g e

68 Figure. 4.2: existing Vicious circle and potential virtuous circle DMT and its hinterland production linkages. Existing RUPLs of DMT and its hinterlands Policy-plan problems, coordination failure and underdeveloped humans Inequality and lack of access to livelihood assets Low productivity and production Existing Vicious circle URPLs Low income, saving and demand Low investment and dilemma of complementarities Destitution; shocks and threats, Lower Capital and inputs deficiency Proposed RUPLs of DMT and its hinterlands Good governance and coordinated activities Boosted rural investment and complex set of chains, high income and demand within developing natural environment Conducive policy-plan, strategies with restructuring institutional setting and laws creating equal access to assets Virtuous circle URPLs and SD Best indigenous experiences of URPLs within enhanced natural environment Sustainable urban production and investment for the region and exports The rest of the world - Source: adapted from Jhingan, 2007, Tacoli 2007, Dalal-Clayton, Dent and Dubios 2003, Douglas, This analytical framework is designed based on the major themes of coordination failure model and structural change model. These two theories of development differ in their approach to achieve development. For example, coordination failure emphasis on causes of poverty and underdevelopment by indicating, how a bad equilibrium would be developed. According to Todaro and Smith (2009), coordination failure is the inability to coordinate sectors and activities that results in all others worse off and bad equilibrium. Whereas, Structural change model focuses on ways and strategies how to achieve development and it argues that transformation and structural change from traditional agrarian economy of zero margin of labour to more industrial and service economies with appropriate development policies are prerequisite conditions. These two models have different approaches and emphasis towards development. 68 P a g e

69 For author s particular interest, mixing these two models (eclectic approach) combine and adapt both the coordination failure and structural rigidity as the main causes of underdevelopment in Ethiopia and Africa. In the study area these factors manifest in the URPLs. Based on the models and theories, the researcher has the aim of investigating the existing and emperical URPLs and explores their key potential investments of DMT and its hinterlands in order to design virtuous circle URPLs for sustainable regional and national development. With this broad goal, the scope of the study is limited to URPLs with some administrative and governance issues of DMT and its hinterland within 20kms radius of sample kebeles/wards (see figure 4.4). Methodology and study site The researcher s philosophical assumption is based on Pragmatism. The rationale for using this paradigm is that it supports legitimacy for mixed methods inquiry; pluralistic and real-world practice-oriented. It also depends on towards what works and practice in real knowledge. The study is designed to be cross-sectional Survey method of personal interaction. Mixed methods research is used in sequential exploratory design of quantitative (minor)-qualitative (dominant) approach. The purpose of using sequential exploratory design is to overcome problems in the first survey method (Quantitative) for using further exploration of in-depth information to the qualitative approach (Figure 3.3). Figure 4.3: The procedure of sequential exploratory mixed methods of research Quan. data Collection Quan. data analysis Quan. data results Qual. designing & data collection Qual. data Virtuous circle RUPLs Model Source: Adapted from Creswell, 2007, 2009 and Teddli, 2009 Discussion and Interpretation of Quan + Qual Qual. data results The study hinterland: East Gojjam zone has 2,593,222 total population of which 1,285,555 males and 1,307,667 females. In this zone, agriculture is the main and dominant livelihoods of people in the hinterlands and this zone has altitudinal range of 500m to 4100m above sea level (Amhara National Regional State Bureau of Finance and Economic Development -ANRSBoFED, 2008/9). Geographical sampling delimitation; the study is restricted within 20kms hinterland around Debre Markos Town (DMT) due to time and financial constraints. The hinterland is divided into small administrative units which are called peasant associations /kebeles. Kebele/ward is the smallest political unit in government administrative system of Ethiopia. The smaller towns (Yewla, Yejube, Amber, Yeboqla and Rebu-Gebya surrounding Debremarkos town) are used as boundary of the study (Figure-4). Nature of the study town: Debremarkos town (DMT) is located 300kms north-west from Addis Ababa and 265km south-east of Bahirdar (Capital of Region-3). Its astronomical location is at about an altitude of 2445m A.S.L and around latitude north and longitude east. The town has Woyna Dega (temperate) climate with 1,380mm and 16 0 c mean annual rainfall and temperature respectively. It is rapidly sprawling in every direction and has now an area of about 6,160 hectares (Debremarkos town industry and development-dmtid, 2009). It is self-administrative town with seven kebeles/wards (figure-4) Demographically, it has population of which males and females with ethnic composition of Amhara 97%, Tigrawi 1.3%, Oromo 0.7%, Agew o.6% and others 0.4%. The economic activities of people are various ranging from petty trading and shoes polishing to large business and trade, 69 P a g e

70 industry, hotels and tourism, and services (ANRS BoFED, 2008/9 in East Gojjam zone finance and economic development -EGZDFED, 2010). Figure 4.4: the location of the study area in relation to Ethiopia and DMT. Region-3 DMT administrative kebeles DMT B A C Source: the author s field survey 2011 sketch map and East Gojjam zone department of finance and development (EGZDFED, 2010). The different zones in figure 4.4 show that: - A stands for the built-up DMT, B is the hinterland sample kebeles and C is the rest of the region, country and world. The sampling instruments are questionnaire, interview and SWOT analysis. In sampling procedure, the study area is divided into three clusters along radiating roads from DMT. Then, the study area is randomly selected from these three clusters. Quota sampling is used in both rural and urban households because representative sampling is not manageable in this time and finance. The rural households are taken randomly with their availability during data collection by quota of 19 from each sample rural kebele (total 114 from 6 kebeles) within 20km radius. 55 households in DMT are also taken in systematic random sampling of every tenth households along the blocks in urban sample. The collected and screened out questionnaires were 50 urban households and 100 rural households. After the analysis of the quantitative data, the qualitative interview themes, questions and issues were revised and 6 rural key informants, 3 urban households, 4 local enterprise owners and two municipal officials, two urban administrative officers and zonal agricultural bureau, zonal industrial bureau and SWOT analysis are sources of these data. Key informants were selected based on age in the area, willingness, knowledge (profession) and employment relation for the issues. 70 P a g e

71 Ethically, humans are the focus of this research and first, work plan was arranged by showing official letter for research and then consent and permission was secured with respondents and informants with their rights and responsibilities. Lessons and issues of literature This part of the paper deals with works conducted on urban centres serving as engines or problems of development in Africa and the globe in the view of existing knowledge towards the urban-rural interface. There are a number of works on this issue. However, we can review them categorizing under two main themes based on their focus: The first group has focused on the lack of using urban centres for generating development. For instance, many scholars (Hess and Ross,2004; Gantsho, 2008) argue that most African governments and Sub- Saharan Africa have lacked the opportunities of using urban centres for serving as engines of development because they lack prerequisites of: well-managed cities and towns; fostered entrepreneurship; promoted economic modernization and diversification; higher income earning opportunity and better infrastructures; the practical necessity for effective local governance and administration. Agriculture in this region has been hindered and failed by absence of credible governments who can design and implement effective development policies. Assefa (2007) claimed that in spite of the straddling nature of most households and the reality, many LDCs governments follow biased policies and strategies that have led to extreme poverty and fast environmental degradation. The second focus of the research works is on the need to bridge urban-rural areas in development in order to break vicious circle of poverty. For instance, Leeuwen (2010) argues that nowadays, agriculture is only really productive when it incorporates goods and services or facilities produced in urban centres and that is why most remote rural countries and areas exhibit the most unproductive agriculture. Douglas (2006) on his side argues that the prevailing theory and policy models do not capture either of the realities or the potential of rural and regional development. Agricultural diversification, agro-industry and resource-based manufacturing, urban services, human power training and local inter-settlement transportation networks, decentralization and democratization are major policy areas of the new development paradigm for bridging the interdependence and reciprocity of rural areas and urban centres. Many other scholars (Todaro and Smith, 2009 and Kirkby, Bradbury and Shen, 2006) argue that breaking the Vicious circle of poverty and developing virtuous circle production linkages needs many preconditions. Empirically, China has transformed the vicious circle into virtuous circle through its own context, new and innovative policies and institutions that directly address the interactions between urban centres and their hinterlands as known by township and village enterprises (TVEs) in the country s small towns with key manufacturing exports. The reallocation of labour from agriculture to non-agricultural economy increased from 2% to 27% annually and most of them were employed in TVEs. Considerable diversity exists in China s off-farm economy with many regional variations such as the south Jiangsu type (diversified collective enterprises established and run by local governments), the Wenzhou type (characterized by household level enterprises and homeworkings) and heavy industry-linked type. Then, the close link between rising agricultural surpluses and the ability of local communities to invest in non-agricultural enterprises are reinforced for further multiplier effects. Thus, the key for China s miracle development is its new and innovative institutional arrangement in transition and the institutions were a feasible path, not straight forward copy of best-practice institutions (as advanced western countries free market). Finally, these scholars argue that a real challenge for developing countries is exploring innovative and context specific institutional arrangements to complementary investment for development. Results and Discussion So far we have seen the theoretical aspects of urban-rural (production) linkages. More importantly, these theoretical discussions help the writer of this paper to come up with an operational analytical framework. In this particular part of the research, an attempt is made to analyze the RUPLs of DMT and its hinterland. 71 P a g e

72 Demographic characteristics of sample households This section will show the nature of respondents and informants for understanding the level of data and analysis. The hinterland households have compositions: in sex; 79.6% are male headed and the rest 20.4% female-headed; in land redistribution status: bureaucrats 41% (32% male headed and 9% female headed) and 59% non-bureaucrats; in age: 1% less than 18 years old (orphan family), years old 17.4 %, years old 76.2% and above 60 years old 5.4%; in educational level: 36.3% illiterate, 40.4% reading and writing skill, 21.3% elementary level (5-8 grades) and 2% completed (grad 10/ 12); and the average family size of hinterland households is 5.2. On the other hand, urban households have demographic characteristics in sex: 67.8% female-headed and the rest 32.2% male-headed; in educational level: 15.3% illiterate, 19.7% has reading and writing, 22% elementary (5-8 grades), 43% completed high school (10 and/or 12 grade) and in age structure: 1.5 % less than 18 years old, years old 17.5%, years old 61.7% and the rest above 60 years old 19.3% and the average family size is 4.2 (Field survey, 2010 and 2011). Most of the respondents are in the productive age which implies that the human resource potential can be one possible consideration for exploring virtuous circle rural-urban production linkages. However, the low level of education needs further training and capacity building for the expected development through virtuous circle URPLs. Douglas (2006) confirmed that human power training is one of the major policy areas for bridging the interdependence and reciprocity of rural areas and urban centres. Hinterland households in URPLs Socio-economic situation Average income and livelihood status: Years 1996 and 2010 are purposively selected for data collection for comparing pre-post (1997) land redistribution effect in the region and the study area since land is the most important asset for rural livelihood and agriculture is the base for urban economy. However, the price of agricultural produces in 1996 is calculated on the current price of households 2010 forgetting of most respondents in the pilot study. The average monthly income and expenditure is used for calculating their average saving (Table-4.1). Table 4.1. the average monthly income and poverty level (by 1$ and 2$) of hinterland households in 1996 and Income per month (in Birr) No. Hhs Average Expenditure Average Saving No. Hh Average Expenditure Average Saving Poverty level by 1$ &2$ per day Below Absolute Absolute Absolute Absolute Absolute Relative Relative Relative Relative Relative Out of poverty > Out of poverty Source: field survey, 2010; currency conversion:1$ 17 birrs; Average DMT price per quintal of cereals (Teff=750, maize=300, wheat=500, Endigo=730.) July Table 4.1 indicates that average monthly income ranges between 250 birrs to 4750 birr per month and per capita income ranges 1.6 birr to 30.5 birr per day (taking mid-points of the lowest and highest intervals). Farmers saving in cash and /or in kind was calculated with the respondents agreement. Thus, based on the 72 P a g e

73 international poverty line (absolute poverty line less than $1 a day and relative poverty line less than $2 a day), 80% of households are found in extreme poverty and all the rural people are in relative poverty in 1996 while in 2010, 87% are found in extreme poverty and 100% of households are in relative poverty. The poverty condition in 2010 is more severe than in This can show that poverty is increasing in the study hinterland from time to time. The interview also shows that groundless and unfair land redistribution, land fragmentation, declining land productivity, landlessness, absence of non-agricultural employment, absence of land contracting or partnerships and entrepreneurial outreaching without technological change from productive people to non-productive (females and old or other unproductive) group are mentioned as the cause for increasing rural poverty. The World Bank report also confirms that 81.9 per cent of the Ethiopian population lives below the international absolute poverty line of $ 1 a day and 98.4 per cent is below the poverty line of $ 2 a day on survey year (World Bank in Ayele, 2006). Many scholars (Todaro and Smith 2009; Hess and Ross 204) also confirmed that agriculture could not satisfy domestic food self-sufficiency and people become increasingly demanding other external help in Africa and on average, about 80% of the target poverty groups are located in rural areas. This confirms that most Ethiopians are extremely poor earning income that does not allow them to obtain the basic necessities of life. However, it is empirically proved that most hinterland people are doing non-agricultural activities such as: pottery, weaving, natural resources (leaves, firewood), street hawking, trading (livestock, sheep, goats and cereals), petty services, daily labourer (as seasonal migration and/or commuting) to diversify their income sources for survival strategy (Figure 4.5). This shows that agriculture alone could not be means of survival for the farmer themselves and agri-business for accumulation to virtuous circle is not available in the study hinterland. Figure 4.5 Non-agricultural activities of hinterland people at DMT market in 2011 Pottery (Mitad Gebya) Baskets and others Cattle trading Seeking daily labour In-depth interview with daily labour seekers show that most of them are landless and depend on their family s land and they are either commuters or seasonal migrants to DMT for non-agricultural employments. They also stated that landless farmers are the poorest of all and employment in DMT is also irregular and sometimes the minimum wage employment would be absent. Tostensen(2004), Rigg (2006) and Tacoli (2006) confirm that the land-poor and landless farmers are among the poorest in the rural poor and they are migrating and working non-agricultural works (such as petty trading, basket-making, garbage pickers ) for survival (struggling for reasonable livelihood). Land holding size, productivity of land and impacts of urban development: The average land holding of each farmer in the study area is found 1.1 hectare in 1996 and 1.o1 hectare in Based on the data, unequal land access and land fragmentation are higher in 2010 than 1996 because Bureaucrats (41% of the households) and others who were working in the previous Derge Regim are given only one hectare regardless of their family size in the 1997 land redistribution which was conducted in this region. The informants state that the 1997 land redistribution was groundless, uneven, inconsistence and varied from one area to other area even in the same district from one kebele to other kebele. However, lack of rational and periodical land redistribution and absence of technological change for farming result many landless poor farmers. Key informants of district land administration office (2010) confirms that farmers 73 P a g e

74 landholding registration shows uneven land holding and small holdings of 0.25 hactare, o.125 hectare, hectare, many other landless people and a few farmers holding four and above hectares in this district. Assefa (2007) in his findings confirm that declining soil fertility, land fragmentation, drought and landlessness are common features of rural Ethiopia. Many respondents have tried to cope the land shortage and declining productivity through changing land use patterns of food crop production to cash crops (mainly Eucalyptus trees, chat and Egesho) due to mainly the comparative advantages of urban development that has created large demand and market for them (Table 4.2). Table 4.2: Factors of land use conversion in the hinterland Urban development Shortages of land Decline productivity in Access irrigation to Access roads hhs 73% 12% 4% 3% 1% 5% Interviewees also confirm that the establishment of different institutions such as teachers training college and Debremarkos University creates greater demand mainly for chat production as well as increasing number of sawmills in the town are one main cause for increasing demand for eucalyptus trees. The urban sprawl and its different compensation law (for tree land greater than farm land) is the other important cause for land use conversion, mainly in the peri-urban hinterland within newly demarcated 5kms radius from the centre of DMT. It is empirically observed that rural farm plots are changed from food crops production into non-food and cash plants (Eucalyptus trees, Chat 40 and Egesho 41 ) with increasing urban market (figure 4.6). to other Figure 4.6 Eucalyptus trees, chat and Egesho expansion on food crop lands at the study area in 2011 New Seedlings of eucalyptus Matured eucalyptus Deforested eucalyptus for sale Chat and Egesho expansion from Wonka, Demashesh, Liqileqita and Adesina Gulit sample Kebeles Source: Field survey, 2011 Development Agency (DA) worker in the study villages substantiated the rapid conversion of food crop production to cash trees. He confirmed that there are some farmers who cover their whole farm land by eucalyptus trees and chat and these farmers are daily labourers and employment seekers in towns. Therefore, urban development (increasing number of institutions and urban sprawl with difference in land compensation) is found the main cause for land use conversion in the hinterland. The development of such rural-urban interactions has created problems and shortages of raw material supply for local agro-industries such as edible oil industries. Hinterland agriculture backward and forward production linkages Backward production linkages occur when agriculture absorbs manufactured inputs (fertilizer, farm implements, water pump, machineries ) and social and physical infrastructure (education, health, -Chat 40 is a leaf which is chewed for stimulation -Egesho 41 is vegetation used for local beer preparation. 74 P a g e

75 transport, marketing, capacity training, financial systems) produced by local industries and services. Agricultural backward linkages motivate farmers to raise agricultural output and stimulate further output development in order to use industrial goods and multiplier effects, However, the study area hinterland agriculture has very weak backwards due to many factors such as the subsistence nature of agriculture. Agriculture is subsistence due to many factors such as lack of financial and institutional support, administrative and land management support and lack of industrial-partnership. For example, the sky rocketing price of manufactured inputs has made little backward linkages. Informants state that every year, the price of agricultural inputs such as conventional fertilizer rapidly increasing and it was 700 birr per quintal in 2009/10 but in 2011, its price raised to birr. Besides, the long-aged traditional farm implements have not yet developed and they have no backward demand (inputs) from industry. They are traditionally prepared by the farmers themselves except the tip of the plough by blacksmith or factory (Figure 4.7). In addition, farmers have used negligible irrigation that demands industrial products such as pumps and pump related equipment. As a result, agriculture has very loose backward linkages/inputs with industries. Figure 4.7. Traditional farming practice and implements in study area (field survey, 2011) Forward agricultural production linkages refer the local processing of agricultural outputs for add-values and utilities. Agriculture is dominated by consumption linkages rather than forward linkages in the study area. Informants stated that weak agricultural forward linkages are caused by many factors such as government export-oriented policy and globalization, land use conversion from crops to cash vegetation, land shortages. The study hinterland is high potential and actual production of Selit/Sesame and Nech Boleqe/Horicot along the Blue-Nile basin, the districts of Gozamin (Chimt and Myangetam kebeles), Basoliben (mainly Dengual kebele), Elias (Genet kebele), Dejen, Awobel and Anneded. However, these oil seeds bypass DMT industries and are exported to foreign currency. The bypass export-oriented policy of the government has made DMT passive and been negatively affecting the local industrial development. As a result, the local industry owners complain that he has no right to buy and use these export-oriented oil seeds. One Selit production investor also confirms that the situation as Selit and Nech Boleqie are exportoriented and the producers of these crops must sell for only export traders who have vat tin number rather than local industries. However, the hinterland provides cash crops and logs to DMT on a regular basis (figure 4.8). Figure 4.8: The supply of chat and logs to DMT from hinterland in 2011 Chat producers marketing, Chat traders, Eucalyptus logs,juniper (Tid) logs one sawmill hip. 75 P a g e

76 Land fragmentation and shortage or landlessness with urban poverty which creates market are found some of the factors for increasing dependence of farmers on the natural environment as income diversification (informants, 2010) for survival strategy (figure 4.9). As a result, the environment is degraded for these purposes. Figure 4.9: Fuel wood, logs and leaf as main source of income in the hinterlands Firewood (both sexes) Leaves and logs (both sexes) Leaves (females) Source: Field survey, 2011 This indicates that rural poverty is reaching at serious and critical stage. Ayele (2006) confirms that poverty situation is worse in rural areas of the Ethiopia than urban areas and rural people use different coping mechanisms. With increasing land shortage and declining productivity, farmers are found risk-taker rather than risk-aversion by producing only few intensive and major crops (Maize, wheat, Teff). Different from this finding, Dejene (2007) argues that risk aversion production of farmers is changed into risk-taker when peasants have developed wealth and capital. The complementary and reinforcing advantages of mixed farming (production of crops and rearing of animals) have not utilized and it is found that 95% of sample households use their animals dug for fuel rather than organically fertilizing their farm land. Key informants stated that due to lack of capacity building, extension service and lack of alternative income sources, majority of farmers use animal dug and crop residuals for source of income by selling either at the urban market or in their home for fuel. As a result, declining soil quality ends up with low production and productivity and low household income which strengthening vicious circle of poverty (figure 4.10). Therefore, this situation could in turn aggravate rural poverty since households will have little or no surplus for proper land related investment. Figure 4.10: marketing of dugs and crop residues in 2011 at DMT. Animals dug preparation and its marketing, crops residual at market one well-off farmer s compost In short, agricultural backward and forward linkages are weak; especially its backward linkages are extremely poor due to many complex factors, mainly subsistence agriculture that form vicious circle of rural poverty. Urban development and its URPLS Ethiopia has 925 urban centres by the Central Statistical Authority in 2004 (UN-Habitat, 2007) and they can use for spatial distribution of activities with their hinterlands. The interaction between urban centres 76 P a g e

77 and the surrounding agricultural hinterland (urban-rural linkage) is crucial to generate important local, regional and national development by facilitating dualistic and mutual exchange of them. The interaction would also enable farmers to acquire modern production inputs, products, skills and modernizing ideas and providing local employment opportunities. In the same way, the urban centre can have industrial raw materials, employment opportunities in expanding non-agricultural activities. In this section, the urban socio-economic and managerial/governance situation of DMT and its hinterland production linkages are discussed. A. Economic status: The same years (1996 and 2010) of hinterland assessment are also used for the existing urban income assessment for using the comparative analysis of the two areas. Table 4.3: monthly income and poverty level of urban households Income (in birr) No hhs Average expenditure Average saving Hhs Average Expenditure Average saving Poverty (by 1$ &2$ per a day) < Absolute Absolute Absolute Absolute Relative Relative Relative Relative Relative Out Out > Out Source: field survey, 2010 ; hhs=households Majority of the urban dwellers have lived in absolute poverty. For instance in table-3, about 80% of the households was living in absolute poverty in 1996 while it is reduced to 74% in Key informants in 2011) explain the reason for the relative decline of urban poverty is stated as the agricultural produces price failure due to the election programme (in 2009/10) in the country. However, the data shows that sample households in 2010 had high income inequality than in The average monthly household income ranges from 250 birr to 5750 birr. The per capita income is in between 2 birr to 45.6 birr per day. Urban poverty is caused by unemployment, underemployment, employment dislocation, retirement, lack of financial and institutional support, absence of farm land contract or absence of partnership to hinterland, employment dislocation/interruption (informants, 2011). The available document also confirms the severe unemployment condition in DMT. For instance, the registered job seekers of DMT were 172 males and 103 females with vacancies of only 25 in 2008/9. The placed job seekers in the same year were only five (ANRSEGZ, 2010). Therefore, urban unemployment is extremely serious that confirms the findings of this study and these study results of DMT households livelihoods insecurity and the urban centre is area of poverty. Assefa s (2007) finding also confirms that overwhelming portion of urban people lives below the poverty line in Ethiopia. It is found that urban households coping mechanisms are weak and insecure livelihoods for future. They have engaged in different seasonal and temporary self-help micro-businesses (53%) and underemployments (35%) such as small shopping, shoes polish, and lottery selling, roasted maize selling, coble stone construction, construction labour, sand and block production, hawking are some survival strategies for some groups of the poor households, especially youths. Other households (3%) are entirely dependent on remittances and /or by the good will of others. 77 P a g e

78 Debremarkos town (DMT) and its production linkages with hinterland Backward productions linkages of DMT to its hinterlands are the supply of agricultural raw material inputs for industrial process in order to add-value, increase utility, market and socio-economic factors like employment. Gantsho (2008) argues that expansion of local industries are more useful for: creating local and international markets to agriculture for regional income source and development; value-adding to agricultural outputs, providing industrial residues to local uses; creating sustainable rural-urban production linkages and employment opportunities. However, the number of investments and their capital for industrial development in DMT is lowest among other development projects (table 4.4). This indicates that the urban government has less focus for the agroindustrial and URPLs. Industrialists confirm that the industrial backward linkages of DMT from its hinterlands have faced severe problems of interruption and shortage of raw material supply mainly due to the hinterlands subsistence agriculture and lack of partnerships (farm-industry, share-cropping, government-private partnership) and lack of other entrepreneurial outreach. Table- 4.4: the number of DMT projects and investment capitals in 2008/9 Investment type No. of projects Investment capital Employment opportunity Urban agriculture Industry Construction Trade Hotel and tourism Social Source: East Gojjam zone investment office, 2008/9 (in EGZDFED, 2010) Similar to the national and regional level, most investment choices are not capable of promoting industrial development and the industrial employment in DMT and it is the least among others (table 4.5). The industrial groups such as food products and local beverage, wood and household furniture s, local sweater handicrafts and blacksmiths are processing the urban industrial activities in DMT (table 4.5). Table 4.5: Types of small scale industry in DMT, their linkages with hinterlands and employment structure Type of firm N0. in Use FWPLs BWPLs Employment DMT structure Grain Mills 76 Powder preparation Consumptive Yes Family and miller (Value-added) Sawmills 40 HH furniture NO yes 2-10 depending Sand and block enterprise 6 Sand & block No Yes Self-employment Bakery 7 Bread NK Yes (indirect) 2-10 depending Pastry 2 Pastry No Yes (indirect) 3-5 employees Edible Oil mills 4 Edible oil Yes Yes (indirect) 2-4 depend Garage 1 Automobiles No No 3-10 depending Powder factory 1 Powder production Yes (Valueadded) No depending General machinery 1 Machines work No No NK Printing press 2 Paper No No 1-2 Sweater enterprise 2 Sweater No No family Thread pump industry 1 Pull out underground water Yes No Self-employ Welding and blacksmiths 10 Metal welding No yes Self-employ HH=household, FWPLs=forward production linkages, BWPLs=Backward production, NK=not known linkages Source: Field survey in 2011 and DMTID, 2010 Table 4.5 indicates the whole industrial situation in DMT and their production linkages with it hinterland (mainly agriculture). The linkages characters of these small scale enterprises are different. For instance, all sawmills have strong backward linkages (their raw materials or logs) from rural villages but the products of these sawmills are sold in urban centres or no forward linkages. In the same way, Edible oil industry has 78 P a g e

79 strong backward linkage but dominant consumptive (indirect) linkages with hinterland. Therefore, development effects of urban industries can be transmitted to hinterland, mainly agriculture by three principal mechanisms: consumptive linkages, backward linkages (inputs and employment) and forward linkages (outputs for agricultural development and motivation of farmers). However, these linkages depend on the development of rural people and their purchasing power. As a result, most enterprises have extremely weak consumptive and forward linkages due to the subsistence agriculture and destitute livelihood of rural people. Socio-economic uses (such as employment opportunities), most of these small industries are processed by owners and family workers and they are also family owned. However, DMT is the East Gojjam Zonal capital and its industries need to accommodate the excess labour power. According to East Gojjam Zone Labour and social affairs office (in East Gojjam zone department of finance and economic development- EGZDFED, 2008/9), the number of registered job seekers in this zone were 8670 with complete and first degree graduates but the number of vacancies at urban centres were 2613 of which only 5 registered job seekers were placed in 2008/9 in DMT. The data confirm the findings of this study. There is a need for more research on how industrial employment to multiplier effect on agricultural production and productivity. Contrary to this study, Bagachew and Stewart (1992) found that small firms (employing 5 to 25) generate more output as well as employment with highest level of labour and capital productivity with lowest capital intensity per units of investment than large firms (employing 100 to 250 or 250 to 1500). Figure 4.11: Existing small scale industries in DMT in 2011 Powder industry Grains mill Local beer industry Bakery industry Edible oil industry Sawmill industry Interview with enterprise owners shows that the production of oil seeds (such as Nug and Gomenzer) has been shrinking and there will not be future processing because of subsistence agriculture and change of rural land use. These Rap seed and Niger seed need extensive farm land for large production. However, land shortage with declining and fragmenting of farmlands in response to rapid population growth could not support the production of local edible oil seeds in DMT. The impact of globalization with government export-oriented policy on some oil seeds is also other bottleneck problem on these local industries. The extensive sesame/ selit production along the Blue Nile basin around the town is only export-oriented and local enterprises are banned not to use these crops by the government policy. The researcher concludes that the future production of edible oil will seize unless other alternative farming system in the hinterland with farm-industry partnership policy will be developed for the problem. The absence of internal factors (good urban governance, industry-farming partnership and other entrepreneur outreach) in the development of local agro-industries is limiting factors for the problem. 79 P a g e

80 Forward linkages of DMT industries are backward agricultural linkages which are manufactured goods and services such as modern agricultural inputs and other industrial outputs. However, the production and provision of DMT s industrial outputs to rural development and agriculture is almost none or zero and the town available industries has no direct forward linkages with its hinterland agriculture where the backward industrial linkages are produced (table 4.5). Thus, the forward production linkages of DMT are extremely weak which cannot support the rural agriculture and regional development. This is because of the same reasons of weak backward industrial linkages above. Bagachwa and Stewart (1992) confirmed that the magnitude of consumptive linkage on non-agricultural goods and services is weaker in Africa due to lower average incomes and poor transport and communication between rural areas and local towns. It is also confirmed that there is no urban investment on rural development and vice versa in contract or partnership. The institutional setting and (local) governance in URPLs Government policy and institutional set-up are important factors for creating relationships between urban centres and their surrounding regions (Bah.M et al, 2006). The state has the responsibility for overall development policies with rules and regulations to create an enabling environment to build a climate of cooperation/partnership and trust among different stakeholders. There is also a need to decentralize and increase participation at all levels of society for increasing commitment of implementation machinery and sustainable development. Several levels of government need to create capable and accountable local governments with vertical relationship, finance and technical capacity for virtuous rural-urban linkages (Picard and Garrity, 1995, Tacoli, 1998). Local governments are in the best position to identify and act opportunities and constraints for rural-urban linkages (Tacoli, 2007, and Douglas, 2006). According to Tacoli (1998), Satterthwaite and Tacoli (2006), key issues and responsibilities for local governments are: ensuring access to: markets, basic education, and essential technical knowledge for small and micro-enterprises; recognizing and promoting the potential forward and backward linkages of urban industries and agriculture; responding to competition from larger and international firms by identifying local opportunities since globalization and market liberalization can negatively affect small and micro-enterprises; supporting trade and networking activities to encourage linkages between the local and regional economy and ensuring natural resources management to respond the needs of both agriculture and non-agricultural activities in a sustainable way. Through decentralization, the government has also designed policy, legal, regulatory and institutional frameworks for local authorities support and capacity for the participation of people in development (MoFED, 2006). In the next section, we will see the implementation of these principles and policy frame by local governments in the study area. The role of hinterland governments in URPLs Local rural governments are stated as the core for the implementation of decentralization and political administration of people at the lowest ladder. Table 4.6: Participation of hinterland households on rural development policy-plan and implementation Key stakeholders Participation (any level) No of HHs % Factor Yes informing about policy development No Farmers do not know assumption Other 3 3 Assuming expertise knowledge as enough Table 4.6 indicates that 97% is not participated in their concern of development policy-plan through indirect and direct ways. Despite the decentralization policy of the government, local governments are not implementing the grassroots participation and administrative services in the study hinterland. This in turn affects the system of regional and national development by reducing the empowerment of people and sustainability of development. The rural local governments also confirm that they have no any development linkages and issues with urban administration. The local officials realize that rural development is different from urban development. The key informants explain that DMT government has the reverse negative impact on rural production and development. For example, different from any other citizens, farmers have 80 P a g e

81 been taxed any time when they supply their produces at DMT market but this is without proper marketing location. Therefore, local government s coordination failure between rural governments and urban administrators assert the loose URPLs and lack of services to people at DMT. It is also indicated that their development policy-plan is developed by top-down or professional rather than by their participation. In the next section, the same situation in urban governance will be assessed for conclusion. The Role of urban governments in URPLs As stated above, participatory development empowers people at grassroots level sustainable development and commitment. The following will assess the general participatory situation of urban people on its development policy-plan. Table 4.7: Participation of urban households in development policy-plan design and implementation Participation No. Hhs % Factor Yes 3 6 Participate (In)direct No No any participation Other 4 8 Informal discussion and informing Source: field survey, 2010 According to the statistical data (table 4.7), public participation is practiced (in) direct ways. In-depth interview with small scale industrialists and officials also show that DMT administrators have no any support to industrial development except controlling industrial output price, tax collection and energy consumption payments or license issues. Key informants also states that there is no any common issue and development linkages with the rural governments in the hinterland of DMT. This is because DMT has its own master plan different from the rural development policy-strategy called ADLI. Therefore, the absence of administrative and service infrastructures for urban enterprises and hinterland economy, such as capacity building and training, partnership development and others, urban enterprises are not a function of production linkages and a source of basic and non-basic source of urban and hinterland development. In short, both rural and urban local governments work without the participation of people and they have no any common linking development issues. This confirms that there is lack of awareness about the virtuous circle URPLs and coordination failure. Coordination failure among governments, institutions, workers and firms or agents, key investments and activities are common and accustomed in the study area, region, the nation and Africa. Key complementary investments have not yet identified and in dilemma like chickenegg question of which should come first. Thus, the author believes that poverty is caused by internallyinduced factors such as policy-plan and institutional setting which should get structural transformation. The study region (Amhara national regional state) and the country as a whole have serious coordination failure on rural-urban and key investment linkages. The main causes for truncated circle of URPLs are the national rural-oriented development policy (ADLI) and its institutional structure. The urban-rural dichotomy at national and regional development policy-strategy makes its equilibrium with institutional settings and implementing tools at local level. Tacoli (1998), Satterthwaite and Tacoli (2006) confirm that macro policy and strategies have often most powerful influences on spatial development and urban-rural linkages. Tegegne (2005) also confirms that key factors underlying weak and loose rural-urban linkages in Ethiopia are: lack of balanced rural-urban development policy, land tenure policy and land size, process and pattern of urbanization, lack of entrepreneurial outreach to agriculture. According to UN- Habitat (2007), the local administrative shortcomings include practical merge of governance and politics, lack of basic financial resources, lack of real fiscal autonomy, lack of requisite management skills and professionalism, endless bureaucratic procedures, an abundance of red tape and frequent change of leadership. As a result, there is no efficient, transparent and accountable local authority which is sufficiently responsive to the fundamental needs of the people. Based on these findings, the author makes a modest attempt to indicate the challenges and potentials of virtuous circle development in the study area as follows. 81 P a g e

82 Strength, weakness, opportunity and threats (SWOT) analysis The SWOT analysis is done by participatory approach in the study area and prioritizing is found very complex. However, this woudld be helpful for the proposed virtuous circle URPLs development. A. Opportunities: East Gojjam Zone is well endowed in rich natural resources on the production, postharvest utilization, animals along the Nile basin for potential development of urban centre in agroenterprises and other small enterprises development. The natural resource (conducive climate of temperate type and water) resources and high raw materials production in the hinterlands such as wheat and maize production (Debre Elias, Yejube), potatoes production (Sinan, half of Machakel and half of Gozamin), and Teff production ( Abalibanos, Yetnora, Anber, Bichena and Gozamin), oil seed production ( mainly Sesame) in Nile basin and huge forest resource mainly Juniper and eucalyptus tree. Crops production potential: 1.Cereals: Teff, Barely, Wheat, Finger millet/dagusa,tritikale, Wild oat/engido, Maize, Sorgum/Mashila; 2. Pulse: Horse beans, field peas, Haricot beans/bolekie, Chick peas/shenbra, Lentils/Misr, Vetch/Guaya, Fenugreek/Abish and Gibto; 3. oil seeds: Niger seed/nug, Lin seed/telba, Ground nut/lewuz, Safflower/Suf, Sesame/selit, Rap seed/gomenzer, potatoes. Animals potential: high livestock resources of cattle, sheep, goats, and equines (horses, donkey, mule), poultry and bees for agroprocessing and other development option. Physical environment: (the sacred) Nile river Basin potential production in crops, fishery and hydro-electric power with a variety of climate (from desert to Alpine) and topography that enable for a wide variety of flora and fauna, mostly good soil and uncultivated land area for crop and timber as opportunities of virtuous circle URPLs (participatory, 2011). B. Challenges: The source of initial capital for industrial and enterprise development with their technology; socio-economic challenges (the poor educational and capacity of people, low income, mass poverty with low purchasing power and demand) and existing vicious circle of poverty; restructuring public policies and institutional structures to national, regional and local levels; transformation of excess and zero marginal rural labour into modern enterprises; cultural barriers (working culture of the community with a number of non-working days by the name of saints, eagles, Christ/God); Globalization and neoliberalization and global environmental and climate changes. Conclusions and policy implications Concluding remarks: It is important to identify complementary and key investments for proper development of rural investment from urban centre and urban investment from rural hinterland. This study confirms the absence of such development linkages and as a result, there are weak urban-rural production linkages that in turn result poverty in the study area. The poverty status in both urban and rural areas is very significant and this is especially found in absolute poverty level. Based on the data, the existing situation of rural-urban linkages is in vicious circle and anomalous that show both rural and urban households have little mutual interdependence and linkages. There are also large mass of land-poor and landless young farmers in the hinterland and many underemployed and unemployed productive urban citizens. Most other studies (kider, 2005, Berhanu, 2004) also confirm that poverty in Ethiopia is greater in both urban and rural areas, with rural poverty greater than urban poverty. Based on the data from respondents and key informants, causes/factors for weak and loose URPLs are: weak role of both local urban and rural governments with dichotomy government development policystrategy and urban master plan and institutional settings; farmland inequality and shortages; inflation and price fluctuation of inputs and outputs; rain-fed and subsistence nature of agriculture without other technological support; natural resources degradation and lack of strong agro-processing industries that reinforce with rural development and serve as platform; absence of subcontracting arrangements between farmers and local industries (farmer-industry partnership) or government-farmer partnership, land tenure insecurity and absence of entrepreneurial outreaching. Globalization and government export-oriented policy that has bypass effect on urban centres, and anomalous development impact of the urban centres on 82 P a g e

83 its hinterland are contributing factors of loose and weak production linkages of DMT and its hinterland.the conversion of food crop production plots into cash plants (Chat, eucalyptus, Egesho and juniper/tid) as a copping mechanism aggravates the problems of agro-industrial development at DMT except sawmills. There is no also industry that has direct forward linkage to agriculture whereas almost all have strong backward linkages with agriculture in DMT. The contributions of small scale industries in adding values and increasing utility and creating market to agricultural produces need further research. However, the general urban enterprises and agriculture linkages are found in truncated circle of development due to factors as mentioned above. Thus, in the existing situation both agricultural food crop and local industries raw material production-supply are found at risk and in threat for future development. Development policy-plan in Ethiopia has been biased either rural area or urban centre for long period of time. For example, the current national development policy (IDLI) and export-oriented policy of the country have overwhelming negative effects on the agro-industrial development in the study area. The explicit and implicit negative effects of the national development policy are also found on local governments and institutional structures DMT and its hinterlands. As a result, local governments of rural and urban areas have dichotomy of rural development planning (ADLI) and urban planning (ten years master plan in the case of DMT). However, DMT has not being functioned its lists of roles (de Jong, 1988 in Douglass, 2006): consumer convenience centre for purchasing non-durable and durable goods; centre for higher order public and private services; agro-resources processing centres; non-agricultural employment centre for excess rural labour; centres of information, knowledge/innovation and partnership for better production; linkage to (inter) national markets by value-adding and increasing utilities for selling products. Policy implications: The findings of this research argue against the dichotomy models of development. Based on this premises, the following ideas are proposed for policy implication: 1. The concomitant development of industry and agriculture is very essential partner for agricultural progress and urban industrial development in spatio-temporal and sectoral activities. Thus, the current knowledge and awareness gap of local, regional and national governments on RUPLs and symbiotic relationships of these sectors need some sort of awareness strategies and comprehensive policy. The national, regional and local level interdependent development policies and strategies need to focus and adopted context related reinforcing and complementing rural-urban-regional production linkages. Thus, structural transformation of traditional, overpopulated rural subsistence sector of zero marginal labour productivity can be withdrawn without any loss of output to higher productive modern urban industrial enterprises (Todaro and Smith, 2009). This indicates that value-added implication of forward and backward linkages of agriculture and industry need be the focal point of policy-plan and institutional structure. 2. In the rising network and globalized society, bypassing effects on targeted urban centres need certain type of government intervention in order to develop virtuous circle RUPLs. Urbanization is inevitable (about 5% per annum in Ethiopia) and thus, accommodating urbanization and using urban centres as engines of development is not a choice but mandatory. Thus, the integrated approach through RUPLs rather than sectoral-based policyplanning and strategies can bring regional and national development 3. Participatory development, partnerships (such as public-private, farm-industry) and/or contracting are essential elements for promoting livelihood diversification and RUPLs Local governments in both rural and urban areas should have comprehensive policy framework with awareness and capacity building to the significance of virtuous circle RUPLs for rapid and real development. 5. RUPLs need be based on feasibility studies undertaken by qualified and interdisciplinary group researchers for designing opportunities of more reliable virtuous circle rural-urban linkages and mutual supportive key investments. 83 P a g e

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87 PART III: SERVICE DELIVERY Chapter 5: Impacts and Quality of Life Outcomes of Road Traffic Accidents using QALY Measures; a Demonstrative Case of Addis Ababa Belew Degnew and Kiran Sandhu Introduction Cities in the developing world within the milieu of globalization are experiencing a phenomenon of chaotic traffic as changing urban growth and consumptions patterns have brought about sharp increase in the number of motor vehicles. As a consequence the rate of accidents and fatality has also increased substantially. Therefore mobility on the road poses a constant risk and a premature death threat. Road accidents are a serious risk, a byproduct of massive motorization and a largely inefficient traffic management system. Road traffic accidents accounts for 2.2% of all global deaths annually making it the ninth leading cause of global deaths and by 2030 it is projected that Road Traffic Accidents will be the third leading burden on health worldwide (World Health Organization, 2008). The detrimental costs of the increased road traffic is manifested in the form of delays, health and environmental damages from pollution and not the least through injuries and loss of life from traffic accidents. In terms of road accidents, it is estimated that after a century of motoring, some 30 million people have died on the roads (GRSP ). According to the Road Traffic Injury Training Manual (2006), around 1.2 million people around the globe loose their lives annually as a result of road traffic collisions with about million people being injured or disabled. Of these 90% of the road fatalities occur in low and middle income countries which are also loosing between 1-3% of the GDP annually due to road traffic accidents. While the situation in the developed countries has stabilised and improved over past three decades, the opposite is true in case of developing countries. Consequently the urban centres in these countries are fast becoming more and more immobile. Cities are experiencing a phenomenon of chaotic traffic as changing urban growth and consumptions patterns have brought about sharp increase in the number of motor vehicles. Therefore mobility on the road poses a constant risk and a premature death threat. Road accidents are a public health risks that can have a devastating impact in terms of urban liveability in our settlements. So while road traffic accidents are a major cause of disability and fatality throughout the developing world countries, but nowhere is the problem as acute as Sub-Saharan Africa. Bad roads, aged vehicles and lax regulations are all considered as the major contributing factors, the accident numbers being three times greater than the number of vehicles in the continent (Stephen, 2003). Within Sub-Sahara Africa, Ethiopia is no exception to the problem of Road Traffic Accidents wherein the ratio of vehicle ownership is one of the lowest in the world (2.3 per 1000 persons) but the rate of road crash is among the highest. For instance as Federal Transport Authority of Ethiopia (ETA, 2010), Ethiopia is loosing more than 0.8% of the total GDP per year due to traffic accident. Out of the total vehicles which are found in the country more than 70% are found in Addis Ababa and the share of Addis Ababa in terms of Road Traffic Accidents is more than 57% of the Country s total. It can be said that Road Traffic Accident in Addis Ababa is a major health scourge and need immediate attention of the city planners and transport managers so that they can be minimized and the adverse impacts be mitigated. Aims and Objectives of the Study This research paper aims to highlight the road traffic accidents as a critical area of concern and posing a severe mobility hazard in the City of Addis Ababa. The main focus of the paper is to highlight the intangible impact of Road Traffic Accidents (RTAs) and the same is done by demonstrating the use of subjective measures i.e, the QALY (Quality Adjusted Life Years) in evaluating intangible losses post an 42 Global Road Safety Partnership (Annual Report) P a g e

88 RTA. Assigning monetary values to the QALY is also done to express the need for investment in road transport and public health to reduce fatalities and injuries caused by RTAs. Methods This research, describes the trend in road traffic crashes, injuries and fatalities over time, determines the relative importance of traffic injuries as a cause of death and serious injuries in Addis Ababa. Furthermore, the main analytical highlight of the study is that it seeks to apply subjective measure i.e, the QALY (Quality Adjusted Life Years) in analyzing the quality of life impacts of road accidents in Addis Ababa City and at the same time also monetizing the value of QALY in order to arrive at the monetary losses by which quality of life can be valued while analyzing road traffic accidents and making a comparison of the same with other causes of morbidity and mortality in the city. The research relies on secondary and tertiary data gathered from the Ethiopian Roads Authority (ERA), Ethiopian Transport Authority (ETA), Addis Ababa Transport Authority, Central Statistical Agency (CSA), Addis Ababa Traffic Police and the Population Census. Results The presentation of the results in the paper is divided into two main sections: analysis of the burden of road traffic accidents and their recent trends and projections and the application of QALY measures and the results therein. Addis Ababa City; a Transport Profile Addis Ababa with the population of ( males and females) in 2011(CSA, 2010) is one of the fastest growing cities of the world. Between 1961 and 1994, the population increased atleast five times. In context of the road transport, the road network of the city follows a ring radial pattern encircled by the ring road to form the ring and radial roads of regional character i.e, Dessie, Debrezeit, Jima, Ambo and Gojam converging into the city to assume the arterial and sub-arterial character in addition to the other roads that traverse the city. In terms of land use the share of roads is just about 12% indicating an inadequacy when compared with the standard requirement of 25-30%. It is estimated that atleast 3.4 million trips are made every day out of which the share of public transit is 34.5%, private motorized vehicles 5% and walking trips account for the largest share of 60.5%. Despite major overhauls, the current network continues to suffer from limited capacity, faulty geometrics, poor condition stretches, inadequacy of public transit, imbalanced hierarchical system and improper traffic management issues, all of which contribute to the increase of RTAs in the city. The RTA Situation in Addis Ababa In terms of the share of RTAs in Addis Ababa to the national context, the share was 29.1% in 1992 and has gone up to 54.2% in 2008 with the average of 57% 17 years thus indicating a steep rise in the concentration and share of RTAs at the national level(see Figure 5.1). Traffic accident in Addis Ababa is dominant between the hours of (14.07%), (13.92%) and (13.54%). Spatially (geographically), out of the total 10 sub cities of Addis Ababa, Kirkos Sub-city shares more than 27% traffic accident followed by Bole Sub-City (17%)(see Figure 5.2 below) Figure 5.1: Share of Traffic Accident in Addis Ababa as Compared to Total Accident in Ethiopia(%) 88 P a g e

89 Source: CSA, 2009, ETA, 2010, Addis Ababa Traffic Police, 2010 Figure 5. 2: Average Traffic Accident Distribution by Sub-Cities in Addis Ababa (2003/ /08)(%) Source: CSA, 2009, ETA, 2010, Addis Ababa Traffic Police, 2010 The table 5.1 also summarizes the recent temporal trends in RTAS, fatalities and injuries in Addis Ababa. While the RTA showed a decrease between 2005 and 2007, in terms of the fatalities there was an increase of 8.4% while the injuries showed a declining trend. However the fact remains that the share of Addis Ababa towards RTAs is the highest in the country (see Figure 5.1) and therefore it establishes a need to highlight the implications of the same so that safety becomes a prime consideration while planning and managing road transport in the city. Table 5.1: Recent Trends of Road Traffic Accidents, Fatalities and Injuries in Addis Ababa * Registered Vehicles(millions) % growth of Registered Vehicles Total RTAs % growth of RTAs Number of Fatalities % growth of Fatalities Fatalities/1000 Vehicles Fatality/RTA Number of Injuries % growth of injuries Injuries/1000 vehicles Injuries/RTA Source; Computed from information provided by ETA, P a g e

90 Impacts of RTA s on Quality of Life Although RTAs contribute maximum in terms of fatalities and disabilities annually yet they receive meager attention. Often RTAs are treated as a public health issue by transport managers and a transport issue by public health professionals and as a result do not receive the rightful attention in terms of suitable interventions from both sides to mitigate them. The victims of RTAs suffer from low quality of life wherein the quality of life includes the value of pain and suffering of the victims and their families. The health related impacts can range from premature death to permanent or temporary disability. Severe musculoskeletal injuries are common in vulnerable road users like pedestrians and cyclists. These injuries are often the prime causes of disability and economic losses for the survivors. Besides severe limb trauma, psychological disorders and depression are the long lasting scars that accidents can bring. People who are injured experience physical and mental pain. Some of them will have to face a restriction of their activities and capabilities which may be permanent. Table 5.2 indicates the type and number of disabilities caused due to RTAs in context of Addis Ababa based upon census of Table 5.2: RTA Caused Disabilities in Addis Ababa City Type of Disability Disability Number from RTAs Disability Numbers from all Accidents(roads and others) % share of Disability by RTAs to total accident caused disabilities Blind Difficulty seeing Deaf Difficulty Hearing Unable to speak Difficulty Speaking Deaf and dumb Nonfunctional Upper Limbs No functional lower limbs Body movement difficulty Learning difficulty others Total Source, 2007 Population and Housing Census, Ethiopia As can be inferred from the above table, RTAs contribute up to 29% of the total annual disability caused by all forms of accidents in Addis Ababa and the maximum share being in musculoskeletal disabilities While the RTAs spell catastrophe for any individual and his/her household, the impacts in case of the poor households run much deeper since the poor segment of the society also happens to be an extremely vulnerable group. When even a single member suffers from RTA particularly if it happens to be an earning member of the poor household, the whole household faces adverse impacts. RTAs can impose a huge financial burden on the poor household and in most cases debt is one of the common responses to the costs incurred with a road death or serious injury 43. The household may be forced to sell their land, house or other assets to raise money to meet the costs from RTAs. In fact a major RTA can dislodge the entire household and push it into severe debt trap and poverty. RTAs may lead to reallocation of labor of all family members. The victims or even their care takers working on daily wages will loose their incomes. The financial hardships can have a permanent effect on the health of the household members and a worsening on their quality of life. Thus it is 43 Studies from Bangladesh (Thomas et.al, 2004)reveal 2/3 rd of the low income victim families under debt after suffering a RTA. 90 P a g e

91 quite evident that the RTAs can have adverse long term impacts on the poor households and devastate them economically, socially and psychologically. Since RTAs usually lead to a few casualties usually 1-2 in case of a fatal accident, their cumulative affect across society particularly in case of the vulnerable poor households remains a largely ignored area of public health concern. In the present day context with the remarkable growth of the motor vehicle and the road user population, it becomes imperative to measure the quality of life in terms of impacts and costs that RTAs can impose with the larger view of proposing public health and transportation interventions that can reduce the RTAs and its adverse negative impacts on the society. Quality of life Assessment of RTA using QALY s The qualities of life assessments in case of RTAs are necessary to understand the impacts and the socioeconomic burden they can impose on an individual household, the society and the nation as a whole. RTAs are actually a major drain on national economy and this fact needs to be brought out so that appropriate policy measures can be put in place to reduce the burden and the loss of quality of life therein. In order to frame and conduct programmes on road safety and plan health interventions the knowledge of RTA impacts and estimation of costs become essential. A quality of life assessment of this nature can help to raise recognition about the RTA s being a major factors contributing to reduced livability in our cities. The quality of life outcomes in case of RTAs can be assessed by taking into account the tangible and intangible impacts of RTAs 44. In working out the impacts generalized quality of life assessments are undertaken 45 which focus on the quality without going into the numeric dimensions of the outcomes. However the quality of life assessments that are to be used for policy formulations or policy evaluations need to be based upon more precise methodologies. As such the methodologies using monetary values to the losses so that the outcomes become more tangible and comparable are the ones that can be put to use. A monetary value must therefore be placed on both the tangible and the intangible impacts of the RTAs and then added to arrive at the cost of the RTA. However since the focus of the research is on intangible costs, these are the ones that are the subject of discussion.. The Monetary losses associated with medical care, other resources used, and lost work output do not fully capture the burden of injuries in terms of the loss to the victims and families by reducing their quality of life. The good health lost when someone suffers an injury or dies can be accounted for by estimating QALYs (Quality Adjusted Life Years) lost. A QALY is a health outcome measure that assigns a value of one to a year of perfect health and zero to death (Gold et al., 1996). The QALY loss is determined by the duration and severity of the health problem. QALY s have been used largely used in the field of medicine and health sciences to judge and arrive at conclusions about the impacts of a disease or a health intervention on the life of an individual or the affected population group. However they can be very effectively applied within the sphere of transport planning and transport economics to measure the impact of RTA on quality of life as has been done in case of recent researches particularly in context of the developed nations(barnes and Thomas, 2006). The impact of road fatality or injury as societal burden can be assessed using QALY. A QALY is where one year of perfect life is worth 1 and one year of less healthy life would have a utility 46 score of less than 1 depending upon the nature of the disability or injury resulting from the RTA. 44 Tangible refers to material/measurable impacts whereas intangible refers to indefinable therefore impacts that are difficult to measure. 45 Such as stating that a person has lost his limbs and because of this life long impairment he is suffering from a poor quality of life. 46 The quality-adjusted life-year (QALY) is a measure of the value of health outcomes. Since health is a function of length of life and quality of life, the QALY was developed as an attempt to combine the value of these attributes into a single index number. QALYs correspond to different utility values when Time is set to be constant (1 year). For example based upon the EQ-5D the following utility values are used to describe a particular state of health quality ; 1.0 indicates perfect health, 0.5 indicates a disability affecting quality of life, etc.(prieto and Sacristán, 2003). 91 P a g e

92 A year of life lived in perfect health is worth 1 QALY (1 Year of Life 1 Utility = 1 QALY) and that a year of life lived in a state of less than this perfect health is worth less than 1. In order to determine the exact QALY value the utility value associated with a given state of health is multiplied by the years lived in that state. A QALY has both the components of quality and quantity of life wherein the quality is calculated using utility measures derived from the EQ-5D Model 47. The following example illustrates the application of QALY to RTA s. The QALY is worked out taking average life expectancy in Ethiopia which is 56 years. Using EQ-5D norm, QALY losses for an individual with a life span of 56 years who has lost his life in a fatal road crash, the computations would use the following formulae; QALY= ( Utility 2 ). Time ; where Time =1year using the utility value of 0.00( in case of a fatality) ; QALY= ( ). 1 = 1/ = QALY losses at 12 months is = Based upon the average life expectancy in Ethiopian context i.e, 56 years, the age at which fatality struck is assumed to be 33 years. Therefore; Life expectancy- age at time of fatality= 23 years. The QALY loss at 12 months is and for the remaining years of life expectancy is 23x0.2929= QALY life years will be calculated across individuals which means that incase of 100 people in the sample group (33years) the annual QALY losses will be 100x6.74=674. In case of a serious injury, using the utility value 0.5 QALY value will be For a disability QALY would then be 23x0.2094= 4.81 years. For the sample group of 100 it would be 481 QALYs. Thus the QALY losses incurred are a potential indicator of the societal burden and poor quality of life resulting from RTA s. Interventions can then be directed towards formulating action plans covering diverse areas related to the causes of RTAs to reduce the QALY counts of the RTAs. Reduction of QALY s in this context is taken as an indicator of reduced RTA related problems affecting quality of life. Therefore the application of QALY illustrates the impact of road fatality or injury as a major societal burden generated from a subjective measure. Monetizing the QALYs QALYs are assigned monetary values to indicate the cost of diminution in a persons quality of life post an RTA. QALYs are monetized in health economics to indicate the potentials of the health interventions and render them comparable (Wolfe and Orr, 2009). Monetizing the QALY offers the benefit of assigning a financial value to what could be the social value of preventing a fatality as well as what the transport and healthcare departments can pay and devise interventions to prevent a fatality (Wolfe and Orr, 2009). As such, in case of the RTAs in Addis Ababa city, an attempt is made to work out the QALYs across age groups of fatalities as also assign monetary values to them. The monetary value assignment uses the 47 EQ-5D is a standardized instrument for use as a measure of health outcome. Applicable to a wide range of health conditions and treatments, it provides a single index value for health status. The EQ-5D assesses health in five domains i.e, Mobility, Pain/discomfort, self-care, Anxiety/depression and usual activity. Each domain has three levels of assessment i.e no problems, some problems and severe problems, making a total of 243 possible health states across the dimensions (Barnes and Thomas, 2006). 92 P a g e

93 pioneer research study of the National Institute for Clinical Excellence(NICE), UK, 2002 which used six approaches to assign monetary values to a QALY using WTP(Willingness to Pay) based methodologies 48. In order to develop localized WTP based values, detail survey needs to be conducted of the affected population as well as population in risk. Due to the limitations of time and resources the same could not be under taken for the said study in case of Addis Ababa. Therefore the derivations of the NICE Research in case of UK are being taken to work out the monetary values in the case study. It may however be cautioned that there will be variations and disparities within the country contexts and so the case study may be taken as a demonstrative model which needs more research to arrive at actual conclusive values. The NICE study estimates the WTP amount of British Sterling Pound 12.5 or US Dollar 21 for 1 in 100,000 reductions in probability of a fatality in other words the value of preventing one statistical fatality (VPF). QALY= WTP aggregate/ loss of the remaining years of life expectancy. The average life expectancy is based upon the national average of 56 years. The remaining life span of each age is calculated and then averaged as per the category as given in table 5.3 below. i.e, 21X 100,000/ 52 = USD monetary value of a QALY as well as the value to be incurred to reduce a single fatality in the ratio of 1:100,000. Calculations based upon this approach for Addis Ababa are summarized the following table. It may also be noted that the above approach does not take into consideration the discount rates. It the discount values are assumed, the QALY values would increase significantly depending upon the value assumed. Table5.3: QALY Computations for RTAs, 2007 Age Group Average lost life span years QALY loss/fatality < > Source; Computed based upon the WTP approach to monetize QALYs, NICE, QALY values based upon WTP In US Dollars QALY based values of safety are currently being used in road project and intervention appraisals in the developed countries such as UK, USA, Canada and Sweden. The Road Transport Authorities in these countries have arrived at standardized values for planning road interventions for the prevention of a road statistical fatality. Similarly values for serious and minor injuries are also valuated in the similar manner. Based upon these assessments it is possible to plan safety measures as also value the cost of the measure and its worthiness. However in context of the developing countries, we did not find a substantial study to indicate the application of such measures though the impacts of RTAs in terms of lost output and human costs were seen across some case studies( such as Asian Development Bank, 2003). In case of Addis Ababa using 2007 figures the fatality/ comes to be 12.6/ with an average life span loss of 31 years. Average QALY loss works out to be 9.07 and the average monetary value/qaly in case of a fatality is USD In the WTP methodology to valuation of safety, one seeks to establish the maximum amount that those affected would be individually be willing to pay for improvements in their own and others safety. These amounts are then aggregated across all individuals to arrive at an overall value for the safety improvements concerned. In order to standardize the values of safety derived from the WTP approach and also to render them comparable with other approaches, the concept of a statistical fatality or injury is applied. 93 P a g e

94 The Challenge of QALY Applications Based upon the above application as demonstrated, the QALY s, in principle appear suitable for making a judgment and evaluating the quality of life post a road accident. However they have their share of incongruity. For instance the productivity across individuals who have suffered a fatality or injury is treated as aggregate while using a QALY measure. However in actual terms the value set against a more productive individual would amount to a more significant increase in the monetary value assigned on an individual basis. However, having said that it may be stated that this level of study shall involve an intricate level of database which is beyond the scope of this study besides the fact that the authors have not come across any study or a QALY formula that could be applied to judge individual productivity loss based on the individuals capabilities or contributions during his life span. The same opinion is shared by a research pertaining to application of QALY in medical sciences which states that the EQ-5D does not tend to perform sufficiently well in reflecting detail variations in health states which might add or indicate a further lose of an individual s productivity (Knapp and Mangalore, 2007). Therefore in order to remove this weakness, additional research is needed to construct viable QALY tools specific to the field of transport safety which is sensitive to productivity variations across individuals. Conclusions The paper demonstrates the use of subjective measures in evaluating quality of life in the aftermath of a road accident. Though the afore mentioned QALY measures may have their share of weaknesses yet they can provide vital information to validate arguments in favour of public health and road safety interventions to improve quality of life in our settlements. They also validate arguments in favour of investing more in road safety programmes and research targeting impacts of RTA s. There are many research related requirements in context of road fatality and injury prevention wherein there is a need for better collection and interpretation of data to enable more reliable estimates to be drawn of the burden of road traffic fatalities and injuries and the economic and social impacts of RTA s, the efficiency of specific interventions such as those related to road geometry, changing land uses, traffic enforcement measures, etc. Road traffic accidents take a major toll of human life and cause immeasurable suffering to the victims and their relations. Road accidents are not about death but about premature death, something which could have been avoided. Human life in Cities is under constant risk because of the dangers associated with mobility. Wherein the developed countries have devised mechanisms like Intelligent Transport Systems to effectively reduce road violations and accidents, the situation in developing countries has not improved. Cities of the developing world shall continue to demonstrate their inherent characteristics and problems well into the future. If things go on in the same manner, roads shall become irritable and major death traps and a major threat to quality of life. Automobilization of settlements should not be permitted to be attended by a growth in the number of accidents, by killing and injury to residents and loss of material values all of which have a deep effect on quality of life. Road safety has a definite socioeconomic and political perspective. Real growth and progress can be made only if governments deal seriously with this context. Road safety is actually the result of premeditated efforts by many sectors of society, both governmental and non-governmental that regard road transport as a valuable public good that has strong growth implications and have therefore developed policies and programmes to enhance road safety and ensure safe and high mobility. The evolution of a sustainable urban transport policy for cities of developing countries requires building up the necessary knowledge base to deal with the complex issues and problems of these cities. Road accidents are a preventable scourge. The use of subjective measure to estimate intangible loss is done to recognize the severity of damages that RTA s can cause an individual, a household, the society and the nation and to devise and implement effective strategies and avoid millions of death, injuries and disabilities that would otherwise occur over the next decades primarily in context of developing countries in Africa and Asia. 94 P a g e

95 References 1. Asian Development Bank, 2003, ADB-ASEAN Regional Road Safety Program: Lao s People Democratic Republic, ADB Publication, Bangkok. 2. Baker,R,Et.al, 2002, Determining the Societal Value of a QALY by Surveying the Public in England and Wales: A Research protocol Submission to National Institute for Clinical Excellence, Newcastle Upon Tyne. 3. Barnes,J, Thomas P,2006, Quality of life Outcomes in Hospitalised Sample of Road Users involved in crashes, Vehicle safety Research Centre, Loughborough University,U.K. 4. Barnett, Jane, et.al,1999, The full Social Cost of Road Accidents, New Zealand Institute of Economic Research, Wellington, New Zealand. 5. Browner,B.D, 2001,The road Traffic Injury Epidemic in the Developing World, joint decade.org/news/news-road-traffic.htm, accessed on Button,Kenneth and Rothengatter,Werner,1993, The Role of Transport, in David Banister and Kenneth Button(editors), Transport, the Environment and Sustainable Development, Alexandrine Press, Oxford. 7. CSA,2010, Statistical Abstract 2011, Central Statistical Agency, Addis Ababa. 8. CSA,2007, The Population and Housing Census of Ethiopia, Statistical Report, Federal Democratic Republic of Ethiopia,Population Census Commission, Ethiopia. 9. ERA,2010, Transport and Poverty Observatory Study, Monitoring Indicators Update Final, %20in%20improving%20rural%20health%20solutions.pdf, accessed on 30/3/ Faiz,Asif,2000, New Directions: Air Pollution and Road Traffic in Developing Countries, Foundation for Research in Community Health,2001, Health Care in India, 12. Global Road Safety Partnership, Annual Report, June2001, accessed on 21/3/ Global Road Safety Partnership, Annual Report, June2004, accessed on 21/3/ Mohan, Dinesh and Tiwari, Geetam, 1999, Sustainable Transport Systems, linkages between Environmental Issues, Public Transport, Non- Motorized Transport and Safety, Economic and Political Weekly, Vol. XXXIV: 25, pp Mohan et.al, 2006, Road Traffic Injury Prevention Training Manual, WHO Publication. 16. Plowden, Stephen and Hillman, Mayer,1984, Danger on the Road; The Needless Scourge, Policy Studies Institute, London. 17. Prieto,L, Sacristán,J,2003, Problems and Solutions in Calculating Quality-Adjusted Life Years (QALYs), accessed on 21/3/ Rawat,A, 2005, World Report on Road Traffic Injury Prevention- A Critique, Indian Journal of Transport Management, Oct-Dec. 19. Singal,B.I,1998, Evolution of Safer Cities: Incidence of Accidents, accessed on 21/3/ TEST Report No 100,1991, Wrong Side of The Tracks? Impacts of Road and Rail Transport on the Environment: A Basis of Discussion, Test, London. 21. Tiwari,Geetam,2000, Urban Transport and safety in Developing Countries: A Paradigm shift for Sustainability, Transport Research and Injury Prevention Programme, Indian Institute of Technology, Delhi 95 P a g e

96 22. Willoughby,C, 2000, Managing Motorisation, Discussion Paper 42, World Bank, Washington D.C.( accessed on 30/3/ Wilmot, C.G, and Khanal, Mandar, 1999, Effect of speed limits on speed and safety; a review, Transport Reviews, Vol. 19. No.4, pp Wolff,J and Orr,S, 2009, Cross-Sector Weighting and Valuing of QALYs and VPFs,A Report for the Inter-Departmental Group for the Valuation of Life and Health, University College London, London. 96 P a g e

97 Chapter 6: URBAN GREENING FOR ENVIRONMENTAL SUSTAINABILITY Mulubrehan Seyum and Daniel Lirebo Introduction Urban green spaces are an essential element of livable towns and cities. They can contribute to the urban renaissance by facilitating the regeneration and improvement of the economic performance of areas; by enhancing and supporting the ecology and biodiversity of the built environment; by enabling healthy living and lifelong learning opportunities; and, by fostering local pride and community cohesion. The issue of sustainable development has become a major issue after the Bruntland Report (WCED 1987), which in this report, is defined as development which meets present needs without compromising the ability of future generations to achieve their own needs and aspirations. Implied in this definition is the concern for natural resources and the well-being of human society. At present, the pace of urbanization is rapid worldwide and is expected to continue in the coming decades, especially in the developing world where the UNPF anticipates 80% of the world s urban communities will be residing in by 2030 (Beardsley 2009). Thus, in order to respond to the idea of sustainability, urban areas have to maintain an internal equilibrium balance between socioeconomic and environmental conditions in such a way that the urban system and its dynamics evolve in harmony, internally limiting, and as much as possible with low impacts on the natural environment (Barredo et al 2003). In the context of ensuring sustainable urban development, urban green spaces are recognized as key ecological service providers to urban dwellers with multiple functions and also as an important pillar of sustainable development. At present, with the increase in the proportion of global urban population, cities are also expanding spatially and resulting in loss of urban green spaces. Particularly the expansion of residential and commercial land uses towards the periphery of urban areas has been recognized as the main factor that is adversely affecting the urban ecosystems (Malun 2005). Due to this, the need for establishing sustainable equilibrium between ecological, social and economic functions of the urban ecosystems has emerged as an important issue of debate in different forum and continues to gain attention in the agenda of achieving sustainable urban landscapes. Ethiopia is one of the least urbanized countries in the world, however presently on the track of rapid urbanization as the result of economic development. According to the recent national population data, the current urbanization of Ethiopia is 17 % (CSA 2008). The same source also reveals that 28% of the total national urban population resides in the capital city of the country, i.e. Addis Ababa, and is considered as Primate City. Addis Ababa was founded 124 years ago; the city emerged first as a garrison town and then become permanent seat of central government since its foundation. Currently, the capital covers a total of 540 km 2 and has about 3 million populations. Over the years, Addis Ababa has grown into a nationally, regionally and internationally important urban center in the country. Despite of such importance, Addis hardly meets the required urban quality and standard of international city in its physical fabric as well as in the level of provision of urban greeneries as urban public spaces. Urban greeneries have always been a valuable asset with multi-faceted value to local communities. They can be sustainable component of the ecology and a community focal point when planned not as a parcel but as a system supportive of and accessible to all classes of human beings. They can serve as a catch basin for storm water runoff, a means to mitigate flooding and pollution, a centre piece for economic development initiatives, a place of serene beauty and contemplation. Moreover good quality urban green space plays a vital role in enhancing the quality of urban life: help to make neighborhoods more attractive to live in and provide opportunities for city dwellers to relax, take exercise, play sport, and meet friends and neighbors. They can also contribute to wider Government objectives such as improved health, more sustainable neighborhood renewal and better community cohesion, especially in more deprived communities. 97 P a g e

98 Statement of the problem It is undebatable fact that the natural ecological balance is mainly affected by human actions. The urbanization and unwise resource utilization as related to this process created huge damage to the urban environment. Even though it is difficult to stop the urbanization process, it could have been wise decision to manage the development in an integrated manner with a due care for ecological balance. As it is true for many urbanized countries, the environmental condition is deteriorating in an alarming rate mainly due to deforestation, emissions of hydrocarbons, and waste management problems. Lack of greenery and beautification initiatives in Addis Ababa can be rated as the highest failure in the ladder of problems that put the city as unsuitable place for residence and working. The vision of the city, however, is set as making the city suitable and preferable as well as competitive place for residence and working by the year 2015 (ORAAMP 2005). a range of environmental problems associated with rapid population growth in the last thirteen years have resulted in a gradual loss greeneries in the city due to quest for built up area. Among these problems shortage of standard urban greenery threatens the microclimate situations, health of the citizens and aesthetic quality of the city. Some of the observed major problems of urban greeneries in Addis Ababa in general are: rapid urbanization accompanied by deforestation; poor soft landscaping absence or of proper plant species within greeneries; and, haphazard distribution of green spaces along the city. Additional problems include: less attention given to the greeneries in the built environment including the renewal sites; bare parking lots and spaces in city with a direct adverse impact on the city s climate and principal and major streets not landscaped with appropriate plant species. Hence all the above observed problems of urban green spaces in Addis Ababa need some remedial actions from city governments to ensure sustainable urban environment. Objective of the Study The main objective of this study is to examine the existing situation of urban green spaces in Addis Ababa towards environmental sustainability. Specifically the study aims to explore the planning and design of the existing soft landscaping, the role of green spaces towards city climate change mitigation, sustainable environment and aesthetics. Methodology In this study both quantitative and qualitative methods are used. The tools that were used under the qualitative method include: personal observations, open ended interviews with local and city level authorities, key informants, and communities; and, focus group discussions. Under the quantitative method the main tool was questionnaire survey. With the help of these tools, we attempt to assess the attitudes, perceptions and motivation of people about the urban green spaces in the city. A total of 300 respondents of diverse background in terms of income, age and gender have been contacted. Among these, 150 of the respondents were drawn from 60 sites with urban green spaces while the remaining 90 are people working in the vicinity of the greenery areas. The remaining 60 respondents constitute local and city level government officials from different offices including Greenery, Park Management and Planning at sub-city and district level; the Urban Planning Institute of City Administration; the Agency of Beautification, Parks Development and Cemetery Administration; and, Addis Ababa Environmental Protection Authority. The primary data have been augmented by secondary data obtained from documents from planning institutions, Federal urban planning institute (FUPI). Furthermore, related books, journals and websites have been consulted. Conceptual framework Cities occupy less than 3% of the global terrestrial surface, but account for 78% of carbon emissions, 60% of residential water use, and 76% of wood used for industrial purposes. In 1800, it was only the city of London that had about a million people while the number increased to 326 cities 200 years later (Brown 98 P a g e

99 2001). Indeed, such rapid has been the pace of growth that in 1900 just 10% of the global population was living in urban areas, which now exceeds 50% and is expected to further rise to 67% in the next 50 years (Grimm 2008). In developing countries, about 44 per cent of the population currently lives in urban areas, but in the next 20 to 30 years, developing countries in Asia and Africa are likely to cross that historic threshold, joining Latin America in having a majority of urban residents (UN-Habitat 2009). Cognizant of these facts, scientists, planners and the general public are now urgently redesigning urban systems. In addition, on the face of climate change, adaptation and mitigation actions for cities in the developing countries are critically required where the urban population is likely to grow over the next 50 years. Many policy instruments and robust scientific enquiries in the last two decades have emphasized the critical necessity of green areas within urban socio-ecological systems to ameliorate several problems of cityliving. Benefits of urban greenings are wide-ranging including physical and psychological health, social cohesion, climate change mitigation, biodiversity conservation and provisioning of the ecosystem goods and service to urban inhabitants. The term Greening the City is used in this article as a comprehensive term, comprising all urban parks, forests and related vegetation that add value to the inhabitants in an urban area. The term urban trees includes trees growing both within the built environment as well as road-side avenues and public places in urban systems. The concept of green space System The concept of green spaces refers to those land uses that are covered with natural or man-made vegetation in the built-up areas and planning areas (Wu 1999). Different disciplines have proposed different definitions from their own professional angles, such as Horticultural Greenland System, Urban Greenland System, Ecological Greenland System, Urban Green Space, and Green Open Space. The meaning of green space system has also been continuously developing with the development of city theory, which mainly involves three meanings: horticultural, ecological and spatial. Echoing the opinions of A.R Beer (1997), green spaces are: Places where contact with animals and birds and the more attractive insects like butterflies, Places with visual variety, Places are children can learn about nature and social life through contact with animals, Places to loiter in and watch the world go by, Places to chat while children play (Mugenyi 2002). Referring to some definitions from other countries such as Britain, America and Japan, some scholars have proposed the definition of green open space from the angle of landscape planning and urban design. Lingzhang (2001) describes green open space as all the areas within the city and its surrounding regions, enabling people to contact the nature. Thus green space system is endowed with spatial meaning. Sustainable City In 1998, European Commission stated in the report Toward Urban Agenda in European Union that the green city model is an alternative model for the sustainable city, based on ecological design and the development of more or less sufficient communities. In comparison with the compact city, urban and rural areas are more integrated, and greater urban self-sufficiency promotes reduced car use. However, implementation of the green city model is based on the availability of land, which may pose a problem in densely populated countries (EU 1998). As in the concept of sustainable development, there is no accepted definition of a sustainable city. Many interpretations exist as to which characteristics of a city are considered to be sustainable. They often include aspects of urban planning and community development. Some cities have been developing their own sustainability indicators, to try and measure quality of life issues in a meaningful way. This has usually been done as a result of Local Agenda 21 consultations or in response to national government guidelines. Beside environmental criteria (water and energy saving, waste recycling, transportation, etc.), quality of life issues are central to all the various definitions of a sustainable city. Aspects such as amount of public green spaces per inhabitant, public green spaces and recreation areas are often mentioned as important factors to make the city livable, pleasant and attractive for its citizens. 99 P a g e

100 It is strongly believed that developing more sustainable cities is not just about improving the biotic and abiotic aspects of urban life but also about the social aspects of city life people s satisfaction, experiences and perceptions of the quality of their everyday environments (Beer 1994). In the context of this study, the relation between urban green parks and city sustainability is addressed through the investigation of the value of urban nature as provider of social services essential to the quality of human life, which in turn is a key component of sustainable development. A Global Perspective on Extent of Urban green and Forests The issue of required green spaces per capita in urban systems has remained controversial. In 20th century, experts in Germany, Japan and other countries proposed a standard of 40 m² urban green spaces in high quality or 140 m² suburb forest areas per capita for reaching a balance between carbon dioxide and oxygen so as to meet the ecological balance of human well-being. Currently, developed countries have tended to adopt a general standard of green space of 20 m² park area per capita (Wang 2009). However, the international minimum standard suggested by World Health Organization (WHO) and adopted by the publications of United Nations Food and Agriculture Organization (FAO) is a minimum availability of 9 m 2 green open space per city dweller (Kuchelmeister 1998). There are also city-specific local guidelines. For instance, China set a figure of 23 trees per city dweller (Jim and Liu 2000). Comprehensive benefits of urban greeneries Urban Greenery system has a great effect on the urban feature. As a recycling organization of urban ecological system, green space system has been a prevalent concern of the society. Since ancient history, people instinctively have had psychological intimacy with green spaces and now they have transferred to rationally studying the benefits of green spaces. Western scholars are concerned more with the quality of green space benefits. For instance, Miller (1996) has grouped the functions of urban green spaces in three classes: architecture and aesthetics function, climate function, and engineering function. In the developing world, scholars in Asian and African countries are influenced by the theory of sustainable development. They emphasize on ecology, society, and economy (Ping 1994). This research, we adopt the three dimensions within a developing country context: ecological benefits, social benefits and economic benefits. Ecological Benefits Green Structure and Urban Climate functions The phenomenon of global warming as observed by climate specialists was at first treated with skepticism. The Intergovernmental Panel on Climate Change (IPCC) estimates that during the 20 th century, the earth warmed up between C and C, while sea levels rose on average by 15 to 25cm. It predicts a sharp increase in these phenomena over coming decades. Unless effective steps are taken in the near future, the 21st century is likely to see temperature increases between 2 0 C and 5 0 C and rises in sea levels leading to the destruction of several cities (Dominque 2002). The integrations of climate in urban design call for an interdisciplinary approach. They include architecture, physical geography and psychology. Vegetation is part of the geographical position. It plays the very important role to modify the microclimate in the scale of people and buildings, as it can be the ventilation in the urban area for cleaning of the air, as well as wind control. The climate is seen, heard and sensed. It is sensed principally as heat or cold, i.e. thermal comfort. The green area also would be the energy savings in the urban energy conservation. Green Structure and Wind Control Plants can modify wind speed on the ground for distances up to thirty times their height. Dense masses of large evergreen trees planted to intercept prevailing winter and summer winds and increase the livability of outside spaces. Drifting snow may be controlled by a series of plant barriers which alternately increase and decrease wind velocities. This can be accomplished by sweeping an area of snow with strong winds and 100 P a g e

101 depositing the snow where wind velocity decreases. Meanwhile, plants also can be used to break, guide, deflect or filter the wind and thereby alter its effects. To properly design for wind control using plant materials, a basic knowledge of air dynamic is necessary. Information about the directions of prevailing winds and their average speeds for different season of the year is also necessary. Green Structure and Noise Reduction Green spaces help to combat noise, as vegetation absorbs sound like as trees, shrubs, groundcovers and turf. If high enough, wide enough, and dense enough, vegetation can decrease highway traffic noise. Plants diffract and break up sound waves, changing their direction and reducing their intensity when suffici ently massed. A 200-feet width of dense vegetation can reduce noise by 10 decibels, which cuts the loudness of traffic noise in half (USAF 2000). As one kind of the environmental pollution, noise will have a bad effect on residents health when it is over 70-decibel. The most effective method to eliminate noise is to make a suitable green space system. The surface of tree s stem and leaf is very rough. Its numerous tiny pores and dense hairs can prevent the sound wave from transmitting, all of which can function as eliminating the noise. It has been proved that a 4.4-meter width green belt can eliminate 6-decibel noise. 40-meter width multiple hierarchical green spaces combined by arbours, shrubs and grasses can eliminate 10~15 decibel noise. Noise will be eliminated much better if green spaces are closer to the noise source. Likewise, the more flourishing the green spaces, the better the effect of eliminating noise. A denser and wider green belt of 19~30 meter integrated with a soft soil surface can eliminate 50% of the total noise. Green Area and Surface Erosion Control Wind and water can erode valuable top soil. Plants, especially grasses, can prevent or control erosion by stabilizing the soil through their root structure. Exposed soil on cut banks and steep slopes should be immediately planted with grasses and/or native low-growing shrubs and spreading groundcovers (USAF 2000). Glare Control and clean air Trees, shrubs and other vegetation can effectively reduce the effect of solar glare and reflection light source and the observer (USAF 2000). Balance carbon and oxygen: Vegetation can release O 2, and absorb CO 2 in the photosynthesis which plays an important role in balancing carbon and oxygen. In the urban environment, such balance needs to be maintained much more by green spaces because of the more oxygen consumptions. It has been measured that 1 hectare broad leaves can consume 1 ton CO and release 0.75 ton O everyday in the growing season. If an adult resident absorbs 0.75 kilogram O and releases 0.90 kilogram CO every day, the balance between carbon and oxygen for one person will need 10 square metres forestry or more than 25 square metres lawns to maintain (Lingzhang 2001). Some German experts have proved that, as to people s breath plus fuel s burning, only 30~40 square metres green spaces for every resident can keep the balance between O and CO 2 within the city. Based on this theory, some countries determined that green space per capita should be 40 square metres when planning the urban green space system. Trap dust: Dust is one of the main air pollutions besides toxic gases. (Lingzhang 2001) also addresses that Vegetation, particularly trees, can effectively hold up, filtrate and absorb dusts. This is because trees have strong crowns and their leaves are covered by hairs and excretive greases, which enable trees to play an active role in trapping dusts. While in the suburban areas, this average value around the parks with flourishing trees was lower than 100 milligram per square meters. It has been measured in Beijing, when the greening coverage rate was 10%, the total number of suspending dusts particles was reduced 15.7%. While the greening coverage rate was 40%, this number was reduced 62.9%. 101 P a g e

102 Social Benefits Recreation Active life itself is recreation and recreation is the essence of life (Wu 1998). Arousal-seeking theory says recreation is a kind of behavior that can improve the individual arousal level. It is created by the interactive requirements between the individuality and environment, or between the individuality and society. The task of recreation is to provide people with opportunities to optimize the arousal level. When the urban planners and landscape designers regard green spaces as an important designing element and take it into application, they will virtually create the active open green spaces where people can have a rest and play. He also believes that with the improvement of material and culture, urban residents put their more emphasis on pursuing outdoor recreations. They are fond of carrying out all kinds of recreations in the greenery space system just because of its diverse representations, multiple functions and intimate characteristics. In order to make the residents have a good recreation in the green space system, it needs to ensure every one can have some suitable areas of green spaces. Thus a standard was made that green space per capita should be over 60 square metres. If 10% of the total urban residents spend the holiday in the green space system at the same time, then everyone should have at least 6 square metres public green spaces. Landscape aesthetics From the view of architects and urban designers, green space is the soft component that composes an integrated urban space with hard space enclosed by entities. The landscape function of green spaces mainly reflects on space, time and location these three elements (Hesheng 1999). Green vegetation can enrich the urban architecture complex skyline and intenerate the hard space through their different forms, colors and styles. So green spaces can not only beautify the urban feature and set off architectures, but also improve aesthetic effects, which makes the urban environment more uniform and more diverse. Meanwhile, in order to embody the landscape value of symbolic aesthetics, it can combine different kinds of green spaces to enclose, plot out spaces and then to create a good urban space image. In his bookmaking The Image of City, Lynch (1961) has proposed five kinds of image elements from the perspective of landscape sense: path, edges, district, nodes and landmarks. He pointed out that image is resulted from the interaction between environment and observer. Urban green space is the critical element for people to recognize and grasp the landscape structure. And it has strong image ability because of its tuneful colors, integrated shape, intimate scale and obvious greenness. Thinking and emotion, which are based on the local natural characteristics, can create a specific cultural landscape with those natural landscapes such as local terrain, soil, vegetation, water body, etc. as the urban green landscape line, green spaces generally occupy 25%~30% of the urban land use, which will be the main element influencing on the urban feature. Urban Green Space Design Principles According to open space design guidelines of Australia (2005) eight key Principles upon which open green space projects should be designed, delivered and managed including be meaningful to place and community, be multi-functional and adaptable, Provide diversity, Encourage social interaction, Promote health and wellbeing, Provide equity and accessibility, Embody environmental sustainability and Ensure financial sustainability. Early development of green spaces in Addis Ababa Urban public open and green space from the early development period of Addis Ababa was Jan Hoy Meda - the contemporary Jan Meda. It was used as a place for social gatherings and as a race course for horses. Jan Meda is still one of the city s important public green open spaces, which functions as: a festival ground for the city wide Timket celebration-(feast of the Epiphany, 19 January) and a site for sport activities such as horse racing and athletic tournaments. 102 P a g e

103 In addition areas such as the St. George node do serve as a place of rest, social gathering, and ceremonial activities and even for recreation. First, of course, the forested spacious church area itself is a gathering place for thousands of people at frequent occasions. Secondly, there is a small triangular area southwest of the church that has been made into the beautiful small municipal park that serves as the setting for the monument of Meneilik II, founder of the city and of modern Ethiopia, is located just outside the main gate of the church. Third, a place with a huge tree served as a central place for administering of justice. Here courts were held and judgements were met out including using branches of the tree to carryout the death sentence by hanging. The fifth function of St. George node was terminated in 1960.Previous to that date the large open paved space near the main gate served as the main focus for the city wide Maskal celebration which is climaxed by the burning of a feet high tepee shaped cluster of poles decorated with Maskal flower. This ceremony, celebrating the finding of the true cross (Maskal) is also a spring festival coinciding with the end of the main rainy season kiremt (Johnson 1976). The above trend of urban green spaces system was improved in 1986 master plan which was developed through Ethio-Italian cooperation indicated that the image of a green city where open spaces and trees play a major role and it also explained the existing situation as things were different for the users and indeed green open spaces for recreation were very limited. In response to this it proposed different solutions to improve the situation, including: protection of continuous green areas along the rivers, building of public gardens and parks, avenue tree planting, preserving and widening of the wood land. Most of these proposals were however, not implemented. For instance the draft of the regional conservation strategy assessed the failure of the 1986 master plan concerning recreational parks as: None of the 31 areas (together 888ha) indicated as future green parks in the Master plan, had been built. Out of the 31 areas, 14 are still green and open spaces, where as four areas are now residential areas, three areas are used as sport fields, three areas are occupied by churches and cemeteries, one is partially owned by the film centre and one belongs to an embassy and so on. Recently; however, the 1986 master plan of the city is revised due to a paradigm shift in the system of planning from conventional land use zoning to a structure planning approach. According to Office for Revision of Addis Ababa Master Plan (ORAAMP 2005) in order to: respond to the rogressive change of scale of the city; (see map 6.1 above) define growth directions and set up a strong development frame, the structure plan is compartmented into various major components. In this context, the Main Social and Municipal Services component of the structure plan is the one which deals with the city s public green spaces. This component, which has a vision of Equitable Distribution of Affordable Services, identified the shortage; poor quality; inefficient administration and; usage and uneven distribution of such services as the current challenges of the city. The proposed solutions for these problems by ORAAMP include: Increase and improve the service provision; Build institutional capacity and sound financing mechanisms so as to bring about a sound and adequate urban green spaces to ensure sustainable urban environment. 103 P a g e

104 In order to realize such proposals, the revised master plan has brought a new type of implementation tools and institutional arrangement. In this context the major actions taken are the preparation of Local development plans (LDP). Local Development Plan as Vechiles for Public Urban Green Spaces As we know, Major parts of Addis Ababa were organically grown, sothat it has umbigous figure-ground or void-solid relationships. That means the city has high shortage of proper and standard public open green spaces. Thus, the redevelopment approach is supposed to be the best opportunities to plan and install adequate public green spaces in inner city areas where redevelopement programs are undertaking. That is why urban redevelopement programs as a policy and strategy could be considered as vehicles for the development of standard public urban green spaces in the inner city areas so as to bring about sustainable environment. ANALYSIS AND FINDING Analysis No one can deny that the natural ecological balance is mainly affected by human actions. The urbanization and unwise resource utilization as related to this process created huge damage to the urban environment. Even though it is difficult to stop the urbanization process, it could have been wise decision to manage the development in an integrated manner with taking care for ecological balance. As it is true for many urbanized countries, the environmental conditions of urbanizing countries is deteriorating in an alarming rate due to deforestation, emissions of hydrocarbons, and waste management problems. Among the required remedial actions increasing the natural green coverage in all possible open spaces in cities is crucial. Lack of greenery and beautification initiatives in Addis Ababa can be rated as the highest failures in the ladder of problems that put the city as unsuitable place for residence and working. The vision of the city, however, is set as making the city suitable and preferable as well as competitive place for residence and working by the year So, it is definitely necessary to intervene in greenery and beautification researches to protect the environment and to make the city competitive at global level. According to ORAAMP (2005), the green frame in Addis Ababa context is classified into 4 major categories i.e: Green along the river banks, Forest and wood lands, Urban agriculture and Parks (recreation; botanical museum; zoological; Natural and street). Urban green space in a city is important for healthy environment. A city without any Natural or man made green is simply collection of concrete block buildings in desert land. Trees attract rain which is the base of all living things with out green plants there is no wild life, it is potential for air to breath. It protects the cities infrastructures from being destroyed. We can t have a healthy urban environment with out natural green development system. Currently we don t have reliable and up to date information about the green spaces except the revised structure plan of Addis Ababa, which is very general to be implemented. The absence of dependable information, the lack of awareness of the citizen; inefficient urban management; and other related problem s has weakened the development and protection of the green frame from repeated flooding, soil erosion, severe deforestation etc which has resulted in unhealthy urban growth and environmental degradation and via this heavy loss of human and animal lives; destruction of the physical and social infrastructures in the city. The rate of deforestation; and the widening of the river banks are very fast. Many indigenous trees have been extincted and the remaining mostly eucalyptus trees are constantly being cut for different activities without significant replacement. Many formal and informal activities such as shelter; industry; commercial; Quarry, mixed farming and other service activities are being conducted along the /riverbanks and in the green frame. Before dealing with selected rivers/river bank and green let us see the role, which are being played by the informal activities along the rivers/river banks and green space. 104 P a g e

105 The formal and informal activities along the rivers/river banks and green have positive role in creating employment and income generating opportunities; housing constructing; which increases housing stock; activities such as small scale (cottage industries), Commercial; agricultural activities are increasing the supply of goods and services with reasonable prices to the citizen. On the other hand these activities are disrupting the healthy urban growth of the city by misusing the scarce resources (land) increasing pollution of air and water; deforestation; and being informal they don t pay income tax; land rent and become the causes of the total environmental degradation. Thus it is important to act on selected element of the land use plan, which is the major component of the revised master plan. Physical Characteristics of Green Spaces is analyzed as follows. 1. River banks: There are 7 major and 6 medium rivers which are fed by 75 small river tributaries the average area covered by the embankment of these rivers is about 70 hectares these rivers are mostly seasonal and starts from around; north; North west and north east of the city and crosses it south words. And converge at Akaki Beseka and create Lake Aba Samuel. The major rivers are Kebena, Ketchene; Little Akake, Kurtame; Bantiyketu; west Akaki and east Akaki the medium rivers are Korsa, Bole, Kotebe; Harbu; Jemu and Beshale for the tributaries. The rapid horizontal expansion of the city coupled with rapid urbanization has led to the informal activities. Such as: -The construction of high and low quality housing construction, Mixed agricultural activities, Mining activities and Construction of industrial; commercial and industrial activities along the riverbanks that contradicts the healthy urban growth and development. 2. Forest: (Addis Ababa Environmental Protection Agency 2011), the forest areas in the city are mostly found at the north; north west; Southwest; North east and wast part of the city. The major forest areas in the city are Entoto, Yeka, Anchorcha; Gullele; Rappi, Hanna mariam, Jemo; fillidoro; Tafo; Legetafo; Dertu; Lebu, Seriti, Kality (around treatment plant), Salo giorgis; Melka shone, Tulu dimtu and around Bole treatment plant and around Yeka Bole (area proposed for cemetery). The total area (existing and proposed) Forest space is about 8528 ha. This area includes; the covered and uncovered and some existing and proposed parks. As urbanization increases, the need of wood for construction fuel and environmental protection also has to increase if the balance is to be maintained, but the reality is not this. The already existing trees are continuously being consumed for fuel and for construction purposes. The spaces reserved for forest is also being settled formally and informally. Not only is this but the wild life also on the verge of extinction. The above-mentioned uncontrolled activities have resulted in severe deforestation. The major negative impacts of deforestation are:- loss of greenness; low breathing air; soil erosion accompanied with the increase of run off that causes the destruction of infrastructure (Bridges, roods and buildings); loss of human and animal lives. The data available indicates that there are at least 15,000* women in Addis Ababa making livelihood as fuel wood carriers, from the existing forest. Which is 35%* of the fire wood requirement of the city. Currently it is only 35.9%* of the total proposed green area is covered with manmade forest. 3.Wood landsthe same source addresses that today the area reserved for wood plantation is not clearly indicated on the plan; rather it is shown as a part of the green frame physically we can see that most of the wood plantations are found around; North West and North East part of the city. The fate of these plantations is also the same as the forest. It is being cut continuously without significant replacement. As the norm devised the average volume of wood Yield expected from one hectare is assumed to be 220m 3* and the total population of wood production out of the 7905 hectares man made forest is equivalent to 1,739,100 m 2* taking into account sustainability only small portion of this potential can be harvested which is very small to cover the demand. In order to satisfy the current fuel wood demand of Addis Ababa 36,000* hectares of land has to be covered with tree plantation. 4. Urban Agriculture: - (The green frame 2011) shows that the urban agriculture of Addis Ababa, which is one component of the green frame, covers an approximate area of about 7309 hectares. The major 105 P a g e

106 agriculture sites are:- Koye, Wedesso; Idoro; Fetche; Akaki; Beseka, Abebora, Dongora, Harbu, Jemo; Bulbula, Bole weregenu, Dire-migra; mekanissa and Lafto. The current major activities being conducted in the agricultural areas are: - Mixed farming such as Horticulture; cereal; bee and animal hasbanbary. Most cereal farming and quarry extraction activities are being done in the expansion areas. As is in the case of forest and river banks informal settlements and activities are also rampantly going on. Horticultural activities are mostly performed along the rivers/river banks of shankila; Akaki; Mekanissa, Sarris lower Kebena and Bole bulbula and in some parts of the northern part of the city. The horticulture activities along the rivers mostly use the river water from the city. Urban agriculture has a significant role in the city s daily economic activities such as recreation; environmental conservation; employment generation for the urban poor, fuel and food supply etc. About 50,627* populations are engaged in agricultural activities. The area covered by horticultural activities is about 351 hectares. The numbers of people engaged in horticultural activities are estimated to about 800. Almost all agricultural producers problems are caused by the on going urban activities that resulted in eviction of farmers, very small agricultural products for the city; production of polluted vegetables; over grazing and rapid urbanization due to the horizontal expansion of the city. *Addis Ababa Agricultural bureau. 5. Green open spaces and parks: These are also one of the components of the green frame. Availabale data shows that there are 11 major functional and formal parks with total area of 110 hectares in Addis Ababa other than smaller neighbourhood green spaces. These parks are Amassador; Hamle 19; Behere tsige; Peacock; Yeka; Ferensay; Sheger, Ambessa gibi, Gola Micheal, Kolfe and Afencho ber green space which are shown in the table 6.1 below: Among as depicted in the table below: Table 6.1: Existing Functional parks Location and area Name of Parks Quality situation No Worda Kebele Location Plot size (m 2 ) Percentage 1 Central park fair , Yeka park poor , Ferensay park fair , Hamle 19 park fair , Shegerpark fair , Anbessa Gibbi park good , Golla park good 1-10, Kolfe park fair Ambassador park good 2-8, Bihere Tsige park poor , Afnchober park poor , Total 1,089, Source: Public Urban Green Spaces Assessment result, 2011 There are five non-functional green parks (see Table 6.1above) due to the lack of minimum basic service facilities. These parks can be functional with little cost and increase the area coverage of parks in the city; they have to be the priority projects to be implemented. The total area of the functional and nonfunctional green parks is about hectares. Most active parks are used for wedding ceremonies. Like other components of the green frame parks are also exposed to different formal an informal activities: such as 106 P a g e

107 construction of shelter/informal settlements and squatting, for grazing, quarry activities, waste disposal sites, poor landscaping/appropriate plant species, shelter for street dwellers etc. Causes of Decline The analysis of changes in the patterns of local authority leisure spending is not definitive, reveals just how big the reduction of spending on Urban Open Spaces has been over the past 10 years proportionately: down from 44% to 31%. Local authorities are also realising that the quality of their green spaces can be a key factor in developing their environmental potential. Under-investment in urban green spaces over the past 10 to 15 years has taken its toll, and is a major obstacle to improving the quality of many poor green spaces. However, financial constraints are not the only factor affecting the decline of urban parks and green spaces. We have identified a range of factors which have combined to produce an environment where long years of decline and under-investment in our urban green spaces have been tolerated both at a city and a local or sub-city level. The needs and expectations of people and their communities for green spaces today are affected by changes in society. Many greneries managers and designers have failed to respond adequately to changing demands for green spaces from increasingly diverse urban populations, and to embrace new cultural trends and changes in society. Table 6.2: Problems and Implications of the Green Spaces in Addis Ababa Problems Implications Deforestation Erosion Flooding Water and air pollution Destruction of infrastructure Misuse (underutilize) of the green Loss of human and animal lives Lack of coordinated action among concerned agencies Implementation is not effective Vacant land(specially in the expansion areas Less cost of development The existence of well organized vegetable and fruit producers Additional supply for the city Demand to develop the river banks Guide urban development and create employment Healthy environment (The degree of pollution is not severe Balanced ecology Potential water that can be treated Can be used for washing and irrigation Suitable landscape and drainable topographic feature Easy for drainage Government owned land Easy to be developed and generate employment Deforestation and Less cost for relocation Formal and informal activities Decreasing of unemployment Flooding of the river banks Loss of human and animal lives Lack of Awareness Destruction of infrastructure and buildings Dumping and pouring of solid and liquid wastes respectively Loss of resource (soil) (Including Pollution of water Health hazards Source: own survey 2011 Inadequate Land Use proposal of green Spaces in Addis Ababa structure plan The relevant data from Addis Ababa planning and information institution and visual observations comfirms that less emphasis has given for the standard land use coverage of green spaces within the city as per structure plan. It also vividly addresses that the land use proposal of green spaces on the document and on the ground are completely different. That is clear maniafestation for the decline of green specaes in the city. Many experts from the concerned istitutions have also comfirmed that there is also huge implementation problem in the city administration. The city Administration Urban Planning and Information Institute has 107 P a g e

108 assessed the existing urban green spaces coverage in each sub city of Addis Ababa as per Structure plan shown in the table 6.3 below. No Sub-City River Buffer Area (ha) Table 6.3: Existing Urban Green Spaces coverage and prposal in each sub city of Addis Ababa Addis Ababa city administration urban plan preparation and monitoring (2011) The overall urban green spaces as per the revised structure plan are about ha as tabulated above (see table 6.3). However, in the past years a lot of zoning change requests has been claimed by several sub-cities on the urban green spaces occupied by informal settlements and other activities. With this line, the city administration is responding the changes as per their requests to mixed uses and residences. Forest Area (ha) Urban Agriculture Area (ha) Wood Land Area (ha) Existing Parks Area (ha) Proposal Park Area (ha) The provision of good quality green spaces can make an important contribution to regeneration and renewal projects, and enhances the image of a neighbourhood, or whole city. Green Spaces (See Map 6.2) are an essential element in enhancing quality of life and a sense of place. Total Area (ha) 1 Addis Ketema Arada Akaki Kality Bole Gulele Kirkos Kolfe Keranyo Lideta Nefas Silk Lafto Yeka Sum P a g e

109 Many city centers are realizing the regenerative and economic benefits of good quality parks and green spaces the proposal for a new city park at the heart of the regeneration of the City of Addis Ababa, Bash Wolde park design is good example. Zoning Changes of Urban Green Spaces According the recent maps obtained from planning institute of the city administration shows zoning change of various categories of urban green spaces is one of the major factors which decline the existing coverage of green sspaces in Addis Ababa that can lay down negative impacts on environmental sustainability. As clearly stated above more than half of sub cities in the city administration are submitting zonining change request to the municipality to change the land use of structure plan urban greeneries to various land use types like residential, mixed use and others so as to respond the appeals of the community those who may occupy the public land illegaly through invasion or encroachments. The following map illustrates the changes approved by the city Administration in 2011 to different urban functions (See the map 6.3). Addis Ababa Revised Structure Plan has been proposed various types of urban green spaces as shown on the environment (map 6.2) above. However, currently most of the proposed riverside buffer strips are highly abusing and occupying by squatters and informal settlers as the city administration is forced to change the land uses of greeneries to residences by replotting and regularizing the informal settlements. The same is true for other green spaces like park lands, forests occupied the informal and illegal settlements and for different investments and so on. This map illustrates that the larger forest has been taken and changed to another urban functions through deforestation of the existing urban forest surrounding the city as green belt. This decision would create an adverse effect on the microclimate balance of the environment. Therfore, it is a great challenge in the process of combating the climate changes that can influence environmental sustainability. For instance, the above area is located at the periphery of Addis Ababa in Yeka Sub-City. The same document reveals that the riverside buffers proposed in the structure plan are officially changed to residences through regularization. Hence, the issues of urban greeneries are losing their attention so that spatial dimensions of urban green spaces are declining and directly influence urban environmental sustainability. LDP Proposals of Urban Green Spaces in Addis Ababa As it is stated above in central parts of the city particularly in Cherkos, Arada, Addis ketema and Lideta sub-cities have no proporly designed urban green spaces. Lideta LDP land Use proposal (Map 6.4) clearly addresses that especially Lideta and Addis ketema Sub-cities have no Public greeneries. Even in the newly designed LDP proposal, one can understand that no more 109 P a g e

110 emphasis has given for urban greeneries with the neighbourhood. So, (Map 6.4) above illustrates that currently redeveloping area as shown above reveals that insignificant attention was given for urban greeneries with in the neighborhood. The proportion of Green spaces is only about 0.9%. From this it has become very clear that the LDP did not consider green and open spaces the integral part of its proposal. The other LDP project implemented in the city Administration is ECA LDP project, As shown in the table below about 60% of the area of the land is allocated for mixed function development that is to be developed by private investors. Institutions like the ECA, the GTZ and the British Council have taken about 17% of the land; information from the Institute of Urban Planning and Information has revealed that the institutions have taken the land for free. The proportion of open spaces is only about 1.8%; from this it has become very clear that the LDP did also not consider green public spaces (see map 6.5) as the integral part of its proposal. Major Findings Zoning changes on green Spaces (Changing Green areas to othe functions) The city Adminstration is officially deciciding to change various urban green space categories like parks, forests and riverside greeneries to mixed use and residences as attached herewith this research report. Urban Planning and information Institute of the City Administration office experts have disclosed that several sub-city Administrations of Addis Ababa are still requesting a lot of zoning changes for spacious areas of various city green spaces occupied with informal settlements, Micro and small scale enterprises, etc to mixed use and residential Land uses. As illustrated above, many sub-cities has been responded positively as per their zoning change requests from various urban green spaces to mixed uses, residences and so on. Therefore, these trends of decisions are continuing and highly declining the current status of greening the city that lead to poor environmental sustainability. Absence of Integration in the management of Green spaces There is abig umbiguity among the concenred agencies like in between Environmental protection Authority and Beautification, parks development and Cemetry administration agency as well as Urban planning Institute and other responsible bodies at the sub-city level. The study reveals that while changing the land uses of urban green spaces to mixed use and residences, no clear discussions were held among the officially concerned institutions like Urban Planning Institute, Environmental protection Authority and so on. Enviromental protection authority experts have informed us that they have no information at all while the institute was changing green spaces to various urban functions. On the other hand, the administration and development of some categories of urban green spaces like urban agriculture, greenieries along the river sides have no clear delineation to maintain proper management of them. Poor Financial Management over Green Spaces As information gatherd from the City Administration beautification, Parks Development and Cemetery Administration Agency together with City Adminstration Environmental Protection Authority made sure that less attention has been given for urban green space development in terms of Budget allocation. This research has investigated thoroughly the problem of budget scarcity for proper green space development so as to bring about urban environmental sustainability. Due to the financial constraints the city government is facing existing greeneries are not sustaibaly managed by the concerned agencies. Particularily, in the rainy 110 P a g e

111 season they get green and aesthetically pleasing, however, in the dry season they get dry and lose their aesthetic value. So, to keep the greeneries green and to develop adequate green spaces sustainably, adequate budget allocation is quite indispensible. Poor Landscaping Landscape planning and Design in terms of soft landscaping is poorly designed and even in some parts of the city administration is bare that clearly contribute for microclimate inbalance. As we observed in the field, most of the parking lots are not provided with appropriate plant species. We are actaually in the tropical area with high solar power that it has direct impact on the cars that help to facilitate climate change. Therefore, parking lots should be landscaped by appropraite canopy and evergreen trees to have shades for cars. Most of the rivers have no retaining walls together with proper landscape design whether hard or soft landscapings. Due to this problem riversside greeneries are highly destructing and vulnerable for erosion. Green parks are also not with properly design landscapes, furniture s etc. Inaccessibility of green spaces Most of green spaces in Addis Ababa are not accessible for the public at large. There is strong evidence from research in the city that residents and workers with easy access to green spaces tend to exercise more; furthermore there are also direct correlations between green access for young people and their mental health and socialisation. It is therefore not surprising that well used and much loved public greeneries are invariably those that are easily accessible to all members of the community. However, most of greeneries in the city are not accesible in trems of their location. Geen spacess in Addis are haphazarldy distrbuted in the city, as per the litrature the maximum distance to the green spacess is 400 to 500m. ECA park is not affordable for all levels of the community. Planning and design of geen spaces play a crucial role in conserving and enhancing the uniqueness, diversity and accessibility. Deforestation Most of the forest and woodlands are deforesting by illegal settlers as well as temporary settlers and small scale enterpries engaged in various activities. They are not conserved as botanical gardens other than Gulele Botanical Garden for Menelik Memorial Tree. On the other hand, some inhabitants are cutting down illegaly to use as fire fuels. This has direct contribution for environmental degradation as well as climate change. The problem of street dwellers The problem of street dwellers is not yet addressed and these people (who use the street medians, green areas as sleeping places) are still damaging the environment by destroying the green coverage on open road side and park areas defecation, and other wastes damping as well as chasing for food left over with their dogs. Less Attention for Green Spaces in LDP proposals For instance, the proportion of green spaces in Lideta LDP is only about 0.90%% which clearly addresses that it has given less attention for urban green spaces in the process of redeveloping central areas of the city. As we all know that particularly the central old of Addis Ababa is organically grown and has not adequately provided with properly designed and planned green public spaces. From this it has become very clear that the LDP did not consider green open spaces the integral part of its proposal. Conclusion and Recommendations Conclusion This research strongly addressed that urban green spaces are the most critical elements to keep the ecololocal balance of urban environments so as to make sure environmental sustainability. Thus, in order 111 P a g e

112 to respond to the idea of sustainability, urban areas have to maintain an internal equilibrium balance between socioeconomic and environmental conditions in such a way that the urban system and its dynamics evolve in harmony, internally limiting, and as much as possible low impacts on the natural environment as intensively discussed snd interpreted in the preceding parts. As far as the roles of urban green spaces in urban environment are considered, they are recognized as key ecological service providers to urban dwellers with multiple functions and also important pillars of sustainable development. As it has pointed out in the analysis part that the multiple functions of urban green spaces are not reasonably well developed, these are also not well integrated into the urban planning, design and management processes. Furthermore, reliable and robust approaches to the valuation of urban green spaces that effectively support decision making are clearly absent. This research also concluded that less attention has been given to the development of urban green spaces as per various categories of them. As it has also explained earlier, changing urban green spaces to the othe mixed use, residences and others, disintegrations among concerned Agencies and institutions, lesser budget allocations etc are clear manifestations for state of deteriorations. Due to the lack of preplanned urban green space development strategies; public awareness, limited human and material resources; even the existing conditions of the green spaces is highly deteriorating. I.e. the rate of deforestation being very high in which the effect is total environmental degradation. Even though; the on going informal activities in the green spaces and along the rivers/river banks of the city have positive aspects in terms of increasing housing stock; employment generation; career for many of the poor immigrants in the city; fuel and construction and food supply. On the other hand; the clearing of the green space in search of land for the above mentioned activities has been causing; erosion; flooding, poor aesthetics; loss of human lives and the destruction of the city s infrastructure. Nevertheless, some attempts have been being made to improve these negative trends. But these efforts were focusing on solving the day to day problems leaving aside the sustainable urban development in order to enhance environmental sustainability. The best of our urban parks and green spaces remain more or less popular. Thousands of people appreciate the benefits they bring to their lives, their neighbourhoods, their sub-cities and the whole city. Across the city there is increasing public awareness and appreciation of the value of good quality parks, play areas and green spaces in regenerating town and cities, improving the health and wellbeing of local people, and providing educational opportunities for children and communities. Despite their popularity there has been a worrying decline in the quality of too many urban parks and green spaces for which action is needed to deliver these benefits as well as shortage of them. This final report of the Urban Green Spaces research has a simple message: now is the time for an urban renaissance with parks and diverse green spaces. The report sets out a programme for City Administration and local government to work in partnership with local communities, business, voluntary organisations and others to revitalise parks and green spaces as well as designing the new ones by Identifying deficiency areas and opportunities for redressing them. It summarises our consideration of the issues, and sets out our conclusions and recommendations for reversing the well documented decline of urban parks and green spaces to regenerate these priceless urban assets, and creating new and different ones which are attractive, accessible, safe and sustainable. The measure of any great civilisation is in its cities, and a measure of a city s greatness is to be found in the quality of its public green spaces. Thus, planners and deigners are supposed to start design and planning with green spaces. Recommendations The research Result Highly addresses that Sustainable communities are places that people like living in, and want to stay in, neighbourhoods with real character and sense of place. These successful places should have well-designed green spaces that people will want to use and respect. All residents of a city should have access to good quality parks and green spaces close to where they live, work, and play. The study underlines the following recommendations to be taken by the city administration and other concerning body so as to bring about environmental sustainability. 112 P a g e

113 The city Administration gives emphasis officially to stop changing various urban green space categories like parks, forests and riverside greeneries to other land uses like mixed use etc, Create strong integration among the concerned agencies and institutions as well as other related stakeholders. Protecting the street medians, green areas from street dwellers from by destroying the green coverage on open road side and park areas defecation Allocating adequate budget to enhance the proper development of urban green spaces as per the categories of green urban spaces. Starting Design and planning of Built environment with adequate Green Spaces by at least maintaining the minimum standard which is sated by FAO which is 9 m2 green spaces per urban resident. Fairly distributed urban Green Spaces (about 15%) are recommmended for previously allocated 1% greenery in Lideta LDP project area as indicated on (see map 6.6) below. Creating an opportunity to involve different stakeholders such as: private developers, NGOs, CBOs and investors in the development process of urban green spaces. creating Green spaces or shared space in areas currently used improving the quality and accessibility of existing green spaces improving access routes and rights of way between green spaces protecting and improving biodiversity and people s engagement with the natural environment improving the quality of open spaces Select the appropriate plant species for the proper greenery and type/ charcter of spaces. Creating easily accessible green spaces for the public at large Provide with flexible policy framework that enhance the development and protection of the green frame. Establish a system that enables the administration itself to follow up constantly if actions are being taken as planned. BIBLIOGRAPHY Addis Ababa City Government, (2004). Local Development Plans Implementation: Conclusions of the Practice Training. Addis Ababa. Alm, Elisabet Lundgren (2004). Urban green structure. Kaunas Best Practice Conference Barredo JI, Demicheli L. (2003). Urban sustainability in developing countries megacities: modeling and predicting future urban growth in Lagos. Cities 2003; 20(5): Beardsley K, Thorne JH, Roth NE, Gao S, McCoy MC. Assessing the influence of rapid urban growth and regional policies on biological resources. Landscape and Urban Planning 2009; 93: Beer, A. and Higgins, C. (2000) Environmental Planning for Site Development, London: E. and F.N.Spon. Beer A.R. and COSTC11 research group (2000) Greenstructures and Urban Planning. European Cooperation in the field of Scientific and Technical Research. Accessed on 8th.July Available: [ 113 P a g e

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116 Part IV Micro and Small Enterprise (editor Aloysius) Chapter 7: Innovations in SME s in Ethiopia Aloysius Bongwa 116 P a g e

117 Chapter 8: Determinants of Micro-enterprise success in the urban informal sector of Addis Ababa: internal factors Belay File and Meine Pieter Van Dijk Introduction In developing countries like Ethiopia the informal sector takes the lion s share in employing the urban labor force and thereby serving as a source of income. In Ethiopia for example, about 50.6 percent of the total urban labor force is employed in the informal sector (CSA, 2003). ILO (2002) estimates this figure to be about 70 percent for Sub-Saharan Africa. Most of these informal businesses are microenterprises that are run by owner managers. Empirical studies that are concerned with analyzing business success in the informal sector rely on size definitions (e.g., Gebreeyesus, 2009; Mead and Liedholm 1998; McPherson, 1996). However, studies that are concerned with formalization or institutional factors emphasize on legality and define informality based on legal concepts (e.g., De Soto, 1989; Nelson and De Bruijn, 2005). This study defines informality based on size criteria and therefore deals with businesses employing less than or equal to 10 workers following the country definition (Ministry of trade and industry, 1997). The World Bank report (2007) indicates in this line that such a broader definition could help indicate appropriate size of informal sector in Ethiopia as there are only about a handful of high-tech and consultancy firms that may bias the definition. Such a size based approach of defining informal sector has received a prominent position in small business success studies. In recognition of the size criteria, many literatures (e.g., Van Dijk, 1996; Mead and Liedholm, 1998; Gebreeyesus, 2009) use the term microenterprises than informal sector operators. This study therefore focuses on and uses the term microenterprises to refer to informal sector operators that employ less than or equal to ten workers. Owing to the size of informal sector it can be argued that the GDP contribution of the sector which largely constitutes microenterprises can be a significant one. It then follows that economic growth and poverty reduction in developing countries would largely depend on how well small businesses perform (Liedholm and Mead 1993). Although microenterprises form the potential for growth, their contribution to the GDP is not so much as expected making them at a disadvantaged position in terms, especially of value added. Despite its growth potential, developing countries did not give much attention to the sector and policies were emphasized on large-scale and capital-intensive investments (McPherson, 1996). A policy that triggers business success in the urban informal sector therefore yields multiple outcomes. In the first place it means arming the poor majority in the fight against poverty by supplying the necessary weapons it wants. It also means development from below when macroeconomic policy instruments seem to fail in many countries. It means reliance on endogenous technology and labor-intensive methods of production. Hence triggering success in UIS would mean equity while also achieving economic growth and good economic discipline. The knowledge of what determines enterprise success (which is the theme of this study) would therefore means a lot making this study, of a great relevance to policy or to the society. It has been argued also that the sector may serve as a seed bed of entrepreneurship, with entrepreneurs graduating to run large industries. Given the role of entrepreneurship in economic development, this side of the argument lends paramount importance to the MSE sector (McPherson, 1996). Moreover, policy makers are currently struggling to embrace such a significant sector to the mainstream economy. In many developing countries including Ethiopia, MSED program uses various policy strategies such as ITC, Business development support services, clustering and business incubators as a tool to embrace UIS operators to lead small firms to success. Such an intervention, however, requires the knowledge of what 117 P a g e

118 determines success in the first place, in the country under study. Such knowledge could save a large amount of scarce resources that are blindly being poured to one program or another with few or no knowledge of which one works best and how. From this angle this study is a highly practical matter for policy makers. Studies analyzing determinants of small business success are wide and diverse. The subject has also demanded an interdisciplinary thinking as economics alone could not be able to explain small business outcomes. The debate on small business success was sparked following Gibrat s (1931) law of proportionate effect, LPE. According to this law firm growth is entirely random. This law attests that there is no systematic influence of firm attributes, such as size and age that influence growth. Therefore according to this law, the observed skewness of firm growth is explained by some stochastic process. Following this law various studies embarked on testing relationships between firm growth and size/age and found systematic relationships between growth and firm attributes (e.g. Jovanovic, 1982; Bigsten and Gebreeyesus, 2007). However, most studies seem to advocate limited factors and hence are driven by limited perspectives that they assume would influence small business outcomes (Baum et al., 2001). For example, the learning process advocated first by Jovanovic (1982) was a dominant perspective in small business success studies. The learning process was based on the premise that firms learn about their true efficiency only after they enter a business and only efficient firms will survive and grow. Jovanovic s learning model has an important implication that younger and smaller firms grow faster (Bigsten and Gebreeyesus, 2007). A number of studies has since then investigated firm growth versus size/age mainly to prove/disprove this polarized debate on firm growth. Subsequent studies on small enterprise success are also largely fragmented. Many of the entrepreneurship literatures are driven by psychological perspectives and are focused on understanding business success largely from the entrepreneur point of view (e.g. McClelland, 1965). This view emphasizes that psychological quality, which differs among individuals and cultures, may create a divergent preconditions for entrepreneurial drive. Other studies focus on supply and demand conditions as key determinants of success (e.g. Liedholm and Mead, 1993, McPherson, 1996). Some studies have emphasized on networks, both formal and informal, as a defining factor especially for firm success in developing countries (e.g. Annen, 2001, Kristiansen, 2004). The social network advocators for example contend that wider social networks and weaker ties may have an influence on entrepreneurial motivation and attitudes thereby influencing success (Renzulli, et al., 2000). Therefore small business success studies have been sparsely explored. Understanding small business success however, requires analysis from various dimensions and perspectives since success is a complex process that comes as a result of a number of factors which cann ot be easily described by a single perspective or dimension (Wiklund et al., 2007). This study aims to investigate business success using a multidimensional model. Emphasis is given to two dimensions: the individual, and the firm. As such the first part discusses a theoretical framework; the second section presents the data and empirical results. Finally the last section concludes the study. 118 P a g e

119 Theoretical Framework What is success for small businesses in the UIS? Many of the small business literatures define success from various angels. For some literatures a narrow definition of success is used owning to the difficulty of obtaining data on other indicators. Employment growth is the most commonly used measure of success for small firms (e.g., Mead and Liedholm, 1998; Bigsten and Gebreeyesus, 2007). A retrospective question, where firms are asked about past and present size of employment, is used to compute growth in case where there is no panel data. According to these literatures a firm is perceived to be successful if it increases in size (measured by number of employees). It is also implicitly assumed that growth in employment size is associated with higher profits (McPherson, 1996). The main justification for relying on employment growth as an indicator of success is that use of other dimensions of success indicators will become more complicated when for example firms do not keep complete book of records. Consequently, it is in rare cases that a multiple set of success indicators are measured for a given data set or a particular study. The argument here is that these small firms recall the number of employment overtime than their turnover or profit. However, other literatures (e.g., Lumpkin and Dess, 1996) argue for a more comprehensive measure of success than a single indicator. According to the authors, entrepreneurial activity or process may lead to a favorable outcome of one performance dimension and unfavorable outcome of another performance dimension. For example, an investment in research and development may enable a firm to engage in new methods of production which would enhance its future revenue. Such an investment may have a downward pressure on current profit. Hence a mere use of profit indicator for success may be misleading. The authors further argue that alternative measures of firm performance may compete depending on the type and size of these firms. For example, privately owned small firms may be driven by goals such as mere survival or subjective goals such as being own boss ; while larger firms could be derived by profit motives. Hence the type and size of a firm could dictate which type of performance measure to use. However, the authors argue that the safest way in this regard is to use as comprehensive indicators of success as possible. Employment growth is a conservative measure of firm success because a firm employs labor usually long after it has realized profit (Liedholm, 2002). Owning to its objectivity and ease of obtaining data many researchers study success using employment growth. However, use of employment growth as an indicator of success is not without a problem. It is especially challenging to obtain information on microenterprises as these enterprises are usually run by owner manager. Moreover as these firms are largely informal, they prefer down-sizing and growing horizontally than enjoying a vertical growth thereby hiding the size of employment generated by a firm. Use of employment growth usually requires obtaining a panel data and this is difficult because by nature informal businesses are characterized by lack of fixed location and a higher degree of entry and exit. Such an entry and exit turbulence in the informal sector poses a big challenge to conduct an overtime study and complicates measuring employment growth for small informal businesses. Despite the difficulties, this study has relied on employment growth as an indicator of success. As such success here is defined by an average annual growth rate of employment size over the study period. 119 P a g e

120 Individual Dimensions Personality traits Lumpkin and Dess, (1996) distinguish the concept of entrepreneurship from the study of an entrepreneur and entrepreneurial process. According to the authors, entrepreneurship focuses on psychological, social and structural factors that determine who will become entrepreneurs; the study of entrepreneurs concentrates on the persons in the process: the dancer of the dance; and entrepreneurial process refers to methods, practices and decision making styles. Although the motive is assumed to be profit maximization, classical definitions of entrepreneurs vary: persons with will and action to make new combinations (Schumpeter 1934), risk taker and coping with uncertainty (Knight, 1971), alertness to opportunities for gain (Kirzner, 1973). So far there is no universally accepted definition of an entrepreneur. The definition used in a given study depends on what one intends to analyze or wants to achieve. In this study an entrepreneur is defined as an individual who peruses opportunities with long-term focus in mind. Although this definition seems to implicitly focus on growth-oriented microenterprise operators, a contrast can easily be made with survivalist operators as one is assumed to be the opposite of another in terms of behavior and goals they pursue. This definition recognizes personality traits such as need for achievement, locus of control, motivation, risk taking propensity, and self-efficacy as important variables in analyzing the psychology of entrepreneurs. Need for achievement Key entrepreneurial behavior lies in achievement motivation (McClelland, 1965). The author explains that a person endowed with need to achieve always strives to do a better and quality job, determined to grow and succeed and will finally reach the target. However, McClelland s achievement theory was criticized for it did not directly connect need for achievement with decision to own and manage business (Sexton and Smilor, 1986). Other critics look at economic development with achievement prevalence implying that entrepreneurs are scarce in economically poor performing countries. Johnson (1990) summarizes various studies on achievement motivations and found that in twenty out of the twenty three studies, achievement motivation and entrepreneurial behavior are positively related. The author argues that small business success studies should not have to ignore the individual because individuals are assumed to be energizers of entrepreneurial process. The author suggests that operationalization of need for achievement should vary contextually; but it should consider validity and reliability. Valid and reliable instruments should be designed specifically to measure the operationalized psychological characteristics or motives. Two new strands of measuring need for achievement have been proposed by Johnson (1990): the MSCS Form T and the WOFO. The MSCS Form T, which stands for the Miner Sentence completion scale-form T, is the instrument used to assess motivation to perform a prescribed goal. It is a sentence completion scale comprised of subscales. The MSCS Form T was introduced after the work of Miner (1982). The essence of this approach is that an individual must possess motivation to accomplish a role requirement of a given profession to be successful within the system. Locus of control Locus of control is the extent to which an individual believes that her actions can influence external/structural factors (Shane et al., 2003). It is the self-confidence of the person to think that her actions can significantly impact on external factors. If the individual has such a confidence, then she/he is 120 P a g e

121 said to have an internal locus of control. On the other hand if the person thinks that her actions cannot influence structural factors, then she/he is said to have an external locus of control because she/he thinks that outcomes (including business outcomes) are decided by external factors which she thinks is outside of her control. Individuals with an internal locus of control are dubbed as entrepreneurs (Shane et al., 2003). If an individual has an internal locus of control, she/he not only dares to open a venture but also strives to grow as the person thinks that she can change the outside world. Thus according to Shane et al. (2003), success is positively related with internal locus of control. Risk taking propensity Risk taking propensity is an important trait of the entrepreneur especially in Africa where entrepreneurs face uncertainties with regard to prices, demand, reliability of infrastructure and corruption (Bigsten and Söderbom, 2005). Empirical studies have shown a positive and significant relationship between risk taking propensity of an entrepreneur and business success (e.g. Casser, 2007). Entrepreneurs with such a trait do not fear to take risks even under uncertain conditions. Thus they tend to invest in their businesses and strive to grow by taking risks. On the other hand risk averse entrepreneurs choose a conservative product mix which would have a downward impact on profitability because these entrepreneurs fail to respond to uncertain future demands (Pattillo and Söderbom, 2001). As entrepreneurs perceive risks differently and also encounter various kinds of risks, measuring risk taking propensity has been a difficult task (Corman et al., 1988). However, the authors suggest a direct question whether for example; entrepreneurs tend to take risks or questions on if the entrepreneur likes gambling as a measure of her risk taking propensity. The implication that can be drawn from these literatures is that risk taking propensity is positively and significantly related to business success or growth and this happens largely through investment in the firm. Self-efficacy Self-efficacy refers to the ability of the entrepreneur to coordinate, combine and organize skills, resources and its competencies to attain a certain level of achievement on a certain task (Bandura, 1997). It is the believe in one s ability to muster and implement the task. It thus involves making good strategic choices, open to new ideas, setup goals and work according to these goals and determination to lead implementation of new ideas, products or services. According to Shane et al. (2003) an individual with high self- efficacy for a given task will exert more efforts for longer time, persist through setbacks and designs better plans and strategies for the task accomplishment. The authors argue that entrepreneurs with high self-efficacy have the ability to change negative feedbacks to positive and productive purposes which would ultimately benefit the firm. Baum (1994) on his work on architectural woodworking industry in US has assessed determinants of firm growth from various dimensions such as general motives, specific skills and competencies of the entrepreneurs, situation specific motivation, vision and strategies of the business. For Baum self-efficacy was the single most important predictor of firm growth among all other traits. Self-efficacy was measured by the self-efficacy of the entrepreneur to grow the company. Personal Background Owning to the difficulty of measuring personality traits, many of the small business success studies emphasize on analyzing individual characteristics such as age, gender, education and experience of the entrepreneur. This study argues that both personality traits and personal background are important in influencing performance. Age of the entrepreneur is among the mostly discussed factor for entrepreneurial success. It has been argued that younger entrepreneurs possess a higher growth ambition compared to older entrepreneurs and that growth ambition drives success (Welter, 2001). The author argues that younger 121 P a g e

122 entrepreneurs are energetic, determined and willing to test their abilities and hence possess greater growth goals compared to older entrepreneurs. Cortes et al., (1987) argue that although older entrepreneurs are likely to be more experienced than younger ones, they may also be less inclined to grow their firms. This leads to the hypothesis that age of the entrepreneur is negatively related to growth ambition and this influences success adversely. Mead and Liedholm (1998) argue that gender of the proprietor may influence business success in many ways. First, MSEs headed by women are largely run from home as they have to bear other household responsibilities. Home based MSEs tend to be overlooked and therefore face either demand problems or may not be visible to support agencies. Secondly the authors argue that, women entrepreneurs are involved in narrow range of activities that yield less profit. In their analysis on selected five African countries, they found that female operators were less likely to survive compared to their male counterparts. However, the difference was nullified when business failure was taken in to account as a factor explaining closure. The authors observed that women entrepreneurs closed their business not because their businesses failed, but largely due to other household responsibilities. Taking this in to account the authors found no significant difference between male and female entrepreneurs in terms of closure rates. Berner et al. (2008), emphasized gender dimension when they decoupled micro-enterprises in to two as survivalist and growth oriented. According to the authors, female majority were in the survivalist category while the male majority occupied the growth oriented grouped. McPherson (1996) argues that since, traditionally, female generated funds are used to cover family s basic needs; female entrepreneurs tend to avoid taking risks that may help firm expansion. Although some studies (e.g. welter, 2001) contend that male entrepreneurs possess better growth ambitions than female entrepreneurs, the effect of gender on small enterprise growth is still ambiguous as other studies counter argue that female entrepreneurs do not under perform male entrepreneurs (e.g. DuReitz and Henrekson, 2000). Schooling is another important personal background that influences small enterprise performance (Bates, 1990). The author found that educational level of the proprietor is positively and significantly related to the firm longevity, which is an indicator of success. Education helps entrepreneurs make good judgments, best use of information, exploit opportunities well; all leading to firm growth and success. McPherson (1996), on his analysis of MSE performance found that human capital of the entrepreneur is a significant determinant of success. He observed that entrepreneurs with training performed better than those without training. Although this is the case, the impact of education on entrepreneurship selection is ambiguous (Goedhuys and Sleuwagen, 2000). The authors argue that higher education not only raises enterprise performance, but it also increases outside options such as wage employment. The authors found for Côte d Ivoire that lower education and vocational training significantly influenced the likelihood of being entrepreneurs versus wage employment, but higher education was found to influence post-entry firm growth. Firm attributes To date no theory specific to MSEs in developing countries has been established (McPherson, 1996). As a result explanations of growth and survival are all based on neoclassical theories of small business success. One of the prominent classical theories on firm growth, measured in terms of employment growth, is the theory of supply and demand. According to this theory a firm employs labor until the marginal product of labor equals the wage rate. Labor demand can increase for example due to a technology shock or price shock. An increase in profit due to either a technology or price shock would lead to a higher demand for labor resulting in firm growth. This theory, however assumes that there is no supply side rigidity. In developing countries where labor is unskilled, employment growth may not be so responsive to changing 122 P a g e

123 demands. Thus this neoclassical theory of supply and demand largely explains growth of firms in advanced countries. The theory of supply and demand was later extended by the stochastic theory of firm growth advocated first by Gibrat s (1931) law of proportionate effect. Although this theory is more dynamic than the theory of supply and demand, it posits that firm growth is random. However, this theory was criticized as many empirical studies revealed systematic relationships between firm growth and firm attributes. The stochastic theory of firm growth was disproved by Jovanovic s (1982) learning model, which contends that efficient firms grow over time and that these firms know about their true efficiency after they start businesses. The less efficient ones exit or stagnate. Thus firms update information about their businesses based on past growth. Jovanovic s learning model attests that some firm attributes have direct effects on growth. Size and age of a firm is the most explained factor in this regard. Regarding the age, the explanation following Jovanovic s learning model is that aged firms tend to predict more accurate estimates of their efficiency and hence grow slowly. But for younger firms the deviation between their prediction and their actual efficiency level might be large leading to more growth of these firms if they discovered that they are efficient. Thus younger firms grow faster than older ones. The size-growth relationship following Jovanovic s learning model is based on the economies of scale and minimum average cost arguments. Large firms have already approached long-run minimum average cost or have attained economies of scale where production reached its efficient level. Further growth for these large firms would imply diseconomies of scale as doing so will lead to a higher average cost. For small firms, however, they are far away from the long-run minimum average cost curve. These firms will grow faster until they approach minimum average cost. Thus the hypothesis drawn from Jovanovic s learning model is that younger and smaller firms will grow faster (e.g. Bigsten and Gebreeyesus, 2007). Packs and Erickson (1987) however criticized Jovanovic s model for it ignored human capital variable in the equation. Jovanovic s model assumes that managers learn about their efficiency level, but did not assume that efficiency of managers may change overtime. Jovanovic s passive learning model was thus criticized by the active learning model of Packs and Erickson. The critics lies in that if human capital of managers improves overtime they will become more efficient and grow faster even if they attain higher sizes. Entrepreneurial Orientation (EO) Wiklund et al, (2007) define EO as a firm s strategic orientation, capturing specific entrepreneurial aspects of decision making styles, methods and practices. According to the authors EO serves not just as a direct determinant of small firm growth, but it helps to mediate other dimensions such as environmental factors influencing growth. All what the environment acts largely influences firms strategic orientation and such orientation influences growth. The authors contend that EO mediates three perspectives that are advocated to influence success namely attitude, resource and environmental perspectives. Therefore although EO is categorized as a firm dimension, it stands in the middle of individual, firm and environmental dimensions, serving as a mediator leading to small business growth. Studies that focus on indirect impacts of various 123 P a g e

124 dimensions emphasize the inclusion of interaction effects between EO and these variables (Covin et al., 2006). Miller (1983) noted that firms and individuals can be entrepreneurial and characterized EO based on three dimensions: innovation, proactiveness and risk taking. According to Miller, entrepreneurial orientation involves willingness to take risks to introduce new products or services, to innovate in order to take advantage of market, and to become more proactive compared to competitors in order to beat them and win in the competition. Although Lumpkin and Dess (1996) expand dimensions of EO in to five by adding autonomy and competitive aggressiveness, most of the empirical studies relied on Miller s three dimensions of entrepreneurial orientation (Wiklund et al, 2007). Researchers have also indicated a strong direct relationship between EO and various firm-level outcomes. The overarching debate regarding EO is whether the EO dimensions should be taken concurrently (Miller 1983) or separately (Lumpkin and Dess, 1996). For Miller a firm is entrepreneurial if it exhibits the intersection of risk taking, innovation and proactive characteristics. A firm that engages in new product formation using new technique cannot be dubbed entrepreneurial if it does not take risks or if it is not proactive. Thus Miller views EO as a one-dimensional construct because he views the three EO dimensions as components that should not be treated independently. Multi-items selected and scaled for each dimension come together to measure one variable, EO. Wiklund et al., (2007) measured EO using Miller s (1983) original scale for measuring EO consisting of eight items. Two of these items describe risk taking behavior, three describe innovativeness and another three describe proactiveness. For Lumpkin and Dess, EO components are viewed independently and hence a multidimensional view of EO is explored using this approach. For these authors, a firm can be dubbed entrepreneurial if it exhibits high in either of five EO dimensions. The underlying assumption for Lumpkin and Dess (1996) is that EO dimensions may not necessarily be interdependent and should be seen as distinct dimensions of firm behavior. In an effort to acknowledge and compare both views on EO, Covin et al (2006) run regressions for individual sub dimensions of EO and found that risk taking and proactiveness have a positive influence on growth; strategic decision making participativeness negatively moderates the effect of risk taking and proactiveness on firm sales growth rates; and strategic learning from failure negatively moderates the effect of risk taking and innovation on firm sales growth rates. The authors also found a moderate- to- high correlation between risk taking, proactiveness and innovation; and supported Miller s contentions that EO should be viewed as a one-dimensional construct (Covin et al, 2006). The data and empirical results The data Based on the framework, two surveys were conducted within a period of about 28 months. The first survey was conducted in the months of April, May and June This was followed by a second round survey on the same enterprises in the months of July, August and September The main objective of conducting two round surveys was to comprehensively analyze determinants of micro-enterprises success using the success dimensions mentioned in the theoretical framework in chapter two. This method of obtaining a firm performance indicator can be contrasted with Liedholm (2002), Baum et al, (2001) and Covin et al, (2006). While Liedholm used a retrospective question about past levels of employment size, Baum et al and Covin et al. relied on tracer survey method to compute average growth rates of firms. Moreover, the success/performance indicator used by these authors was also limited to employment growth. However, use of employment growth only, would lead to a bias as evidenced for example by Parker s (1994) analysis of MSE growth in Kenya who found that sales growth was almost double the growth in employment among 124 P a g e

125 the surveyed firms. She concluded that employment growth is the most conservative measure of firm success. However for our present purpose we use employment growth as an indicator of success. The first round survey came out with about 1000 respondents. The questionnaire was designed in such a way that all the entrepreneur, firm characteristics and external factors are systematically obtained as well as success indicators. A second round survey, in 2010 traced previous respondents and posed similar questions but added some entrepreneurship related questions such as personality traits and growth motivation. Multi - stage cluster sampling method helped to trace back to residence and establishment areas of previous respondents. Although the major part of the analysis of the study relies on the 2010 data, success indicators have now been measured over the period of 28 months. In the second round survey a qualitative questionnaire was also designed to collect information on subjective indicators of success as well as to understand the dynamics of success qualitatively. This involved an in-depth interview with successful formal sector operators who were once in the informal sector and also a focus group discussion and an interview with heterogeneous groups of informal sector operators. Representatives of the relevant institutions were also part of the qualitative information gathered. The second round survey yielded a total of 286 previous respondents. Among these, 11 operators (1.1%) have moved to the upper category because they were found employing more than 10 workers including the proprietor. The churning up in the informal sector can be evidenced at this spot when in nearly two more than 70 percent of the informal sector operators cannot be traced from the previous sample. Although one expects net firm expansion and net firm creation against firm contraction and firm closure (Liedholm 2002), as the most important determinant for the size of micro-enterprises in the urban informal sector, the difficulty of tracing informal sector operators largely emanates from the poor working conditions, structure of the sector and the economy as a whole. From among the 714 previous operators who the second survey could not trace, 47% have left Addis, 35% have changed previous residence, and about 28% of the previous respondents have quitted operating their 2008 informal businesses according to information obtained from other household members, neighbors and previous colleagues. A descriptive method of data analysis which makes use of percentages, tables and graphs have been employed for this study. Results and discussions Socioeconomic Background of respondents Age and sex of respondents Age of an operator is an important factor for it has something to do with entrepreneurial success through its effect on growth ambition, determination and willingness to test abilities (Welter, 2001). Gender of an operator also has an effect on enterprise success in many ways such as through bearing family responsibilities, growth ambitions and location of the enterprises (Mead and Liedholm, 1998). The data reveals that about 84% of the operators are aged less than or equal to 35 years. About 98% of the operators are in the productive age range according the United Nations human development report criteria. From the data women account about 53.5 % consolidating the findings by CSA, 2003 that women dominate informal sector shares in Ethiopia. This dominance is much pronounced in the age category of years. In all other age categories the gender difference is not that much significant and even male proportion has exceeded their female counterparts after 55 years of age 125 P a g e

126 illetrate Nonregular Primary school Junior seconary school High school Grade 12 and above Percentage Figure 8.1 Age and Sex Composition Age and sex composition %female %Male Total Age category Source: own computation from data Education The data reveals that majority of micro-enterprise operators in the urban informal sector are not illiterate as such. Only about 10% of the operators are illiterate according to the data. However, there is a gender gap in terms of education level. The percentage of female operators exceed male in three education categories namely, illiterate, non-regular and primary. But at higher levels from junior secondary school and above male dominates the percentage education share. On the average male operators are more educated than female. About 6.3 percent of the total operators have completed grade 12 and above. Gender wise about 4.6 percent of male and 1.7 percent of female operators have completed grade 12 and above. Figure 8.2: Education level by sex Education level by gender %femal %male Source: own survey result Migration status The data on migration status shows that the majority of respondents are migrants. Only 32 (11.2%) of the total operators are natives (born in Addis). The remaining 254 (90.8%) of the respondents are migrants. About 116 (40.6%) of the respondents are migrants from Southern nations and nationalities (SNNP). Two important arguments can be derived from this data. One is that informal sector is a channel through which migrants learn urban life. The findings on education level of respondents as shown above reveals that 126 P a g e

127 although the proportion of illiterates is only about 10% of the total, the proportion of those who completed grade 12 and above is also only about 6.3%. Thus the chance for migrants of joining formal sector jobs is constrained by their level of skills and education leading to a contention that migrants expect informal sector jobs a priori. This is evidenced by an interview with respondents No.11 shown below. It is a breeding room for migrants in their journey towards successful entrepreneurs. Table 8.1 Migration status Place of Birth No. % Addis Ababa Tigray Oromia Amhara SNNP Other Source: own survey result This supports the argument by Van Dijk (2006) that informal sector could serve as a way of redistributing growth from urban to rural poor. In cases where the rural sector fails to accommodate an extra labor, the informal sector could serve as a buffalo. Secondly the fact that about 40.6% of respondents migrated from SNNP hints that a strong push factor could drive migrants to informal sector. SNNP is known for its densely populated area in the country. Interviewed migrants from the region also responded that lack of farm land and other opportunities have pushed them away from their place of birth. Some are tempted by returning migrants indicating that some pull factors are also there as a factor driving migrants to informal sector. Employment growth and success factors The trend against proportion of respondents has been revealed using the diagram below Profit growth has been consistent and smoothly growing for all enterprises. Also profit growth lies above employment growth except for the two categories: the 0-10 category and the growth categories. In all other growth category most respondents reported higher profits growths. In the first growth category (less than zero) the proportion of respondents reporting a negative profit growth is higher than the one reported for employment. A closer look into the data for the 0-10 growth category shows that about 101 (35.3%) enterprises have achieved a zero employment growth rate or remained stagnant while the proportion of respondents reporting profit is about Out of the 101 enterprises reporting a zero employment growth, 87 (86.1%) of the stagnant enterprises (in terms of employment) were incurring a positive growth in profit. This indicates that although there is a positive and significant correlation between profit growth and employment growth the effect of profit on employment is not instant. A more direct relationship between sales growth and profit growth is observed except in the growth category of 0-10 percent. Large number (42.6%) of enterprises has incurred a growth rate of sales ranging between 0 and 10 percent. The following diagram reveals the dynamics of micro-enterprises for the existing firms. About 2.8% of enterprises have experienced a negative annual average growth rate for sales and about 9.4% of the enterprises have cut jobs/reduced employment and about 13.3% of the enterprises have experienced a negative annual average growth rate of profit over the past 2.33 years. Employment growth based on our data is comparable to African figures. Liedholm (1993) computed the annual average growth rate of microenterprises for 11 sub-saharan African countries and obtained about 5.3% of firms for Botswana, 2.8% for Kenya, 8.2% for Lesotho, and 17.8% for Niger were experiencing a negative growth rate (contraction) using employment growth as an indicator of success. The same study reveals that on average about 65% of all micro-enterprises in the selected countries have remained stagnant. Our data reveals that 101 (35.3%) 127 P a g e

128 < [11-20] >100 Proportion of respondents enterprises have stagnated or achieved a zero growth rate in employment indicating a relatively better performance compared to the average of African countries mentioned above, although there are significant time gaps between the study periods. However, only 27 (9.4%) of the MSEs have achieved a growth rate ranging between zero and ten percent annually. None of the MSEs have achieved exactly zero growth rate in profit implying that employment expansion comes long after firms have experienced profit. Hence the data confirms the contention that employment is a conservative indicator of success. However as argued by Covin et al, (2006), Liedholm, (2002) and Parker (1994) employment growth need not be deflated and can easily be recalled by respondents. Figure 8.3: Micro-enterprise growth Micro-enterprise growth Sales employment Profit Average growth rate category Source: own computation from data Entrepreneur Characteristics and employment growth Key characteristics chosen for the descriptive analysis of this study following Cunningham and Maloney, (2001) education level, gender, age, experience, growth motivation, self-efficacy, risk taking propensity and need for achievement. Personality traits are measured using a five-scale Likert method. Average of the score of items for each factor is taken for the individual to compute the score under each trait. For example for enterprises exhibiting a growth rate of between zero and ten, the average score for Need for achievement motivation was about 3.3. This means that first the score for each enterprise is computed based on the three item-five scale Likert method as discussed in the methodology and theoretical framework. Then the average of the score for enterprises under this growth category is computed and presented in the table above. Growth motivation is computed on a one item five scale Likert question asking operators on whether they have tendency to hire more employees next year. Average experience is measured using the number of years of working experience that operators have in the industry in which the current business is located following Dahl and Reichstein (2007). 128 P a g e

129 Personality traits Employmen t Growth (annual average) % Av. NA Av. RTP Owner Characteristics Av. SE Av. Growth Motivatio n. Av. Experi ence. Avera ge age Gender (Higher proportion) Education level with highest proportion < Female Elementary Female Elementary Female Junior Female Illiterate Male Elementary Female Elementary Male Junior Female High school Female Junior Male High school Male Grade 12 and above > Male High school Source: own computation from data Relationship between personality traits and employment growth is shown using the diagram below. The data shows that although there is a positive and direct relationship between personality traits and employment growth as a whole, it seems that this is not so stronger for Risk taking propensity (RTP) and self-efficacy (SE). The relationship between need for achievement (NA) and employment growth seems stronger showing that enterprises with high need for achievement scored higher values of average employment growth rates. Figure 8.4: Success Versus Own Characteristics Success versus own characteristics Source: own survey result < [ Employmnet growth >100 Av. NA Av.RTP AV.SE The finding supports McClelland s (1965) and Begley s (1995), argument that key entrepreneurial behavior lies in achievement motivation. The authors argue that successful enterprises possess higher need for achievement compared to the non-successful entrepreneurs, success being explained as employment 129 P a g e

130 Experience and growth motivation expansion. A more or less horizontal curve for risk taking propensity deserves an explanation. From both the table and the diagram there is little variation in the score for RTP for firms at various growth categories. Risk taking propensity has little impact on creating more jobs by enterprises. However, risk taking propensity is found to show a strong and positive impact on profit growth as shown below. May be the higher uncertainties associated with inputs and demand for the product outweighs the tendency to hire workers although enterprises remain successful. Or it could be that employment growth takes place long after enterprises have achieved profit growth. Figure 8.5 Owner Character and Success Owner characters and success Av.Exper Av.Growmotive 1 0 < 0 [ Employment growth Source: own survey result Experience and growth motivation tend to show a positive and stronger relationship with employment growth as shown on the diagram above. Enterprises with higher growth motive and better experience in the industry in which they are currently operating, are found to hire more workers. Education and gender of the operators were also analyzed in the data set. The result shows that male dominate the percentage share of the highest growth category. On the other hand the proportion of female is higher in the lower growth category implying that male operators tend to show higher tendency in hiring workers. This could be related to the general performance of enterprises owned by both sexes. Female owned enterprises generally perform less largely due to the household responsibilities and other deterring social factors. Education also matters when considering success from the point of employment growth rates. More educated entrepreneurs showed better tendency to employ workers. Enterprises with employment growth rate of above 80 percent were all owned by either high school graduates or 12 and above education level. On the other hand enterprises with a negative employment growth rate are owned by elementary school graduates or elementary school drop outs. This supports the finding by Bates (1990) who contended that schooling is an important personal background that affects enterprise success. 130 P a g e

131 Firm age and firm size Age of the enterpreneur Figure 8.6: Age of the Owner Versus Success Age of the owner versus success Source: own survey result < [ Employment growth rate >100 Regarding age of the entrepreneur the data reveals that although it seems that there is an inverse relationship between employment growth and age of the owner, this relation is not so strong. However, most successful entrepreneurs are found within years of age on average. Firm Characteristics and employment growth Av.Age The diagram below reveals some relationship between firm age and size and success when success is viewed as employment growth. It is clearly shown that an inverse relationship exists between employment growth and size and age of enterprises reinforcing the above finding that younger and smaller firms grow better. Figure 8.7: Success Versus Firm Attribute Success versus firm atrributes Av. Firm Age Av.size 2 0 % >100 Employmnet growth Source: own survey result Entrepreneurial orientation of a firm has also been assessed against employment growth. The data clearly reveals that entrepreneurial orientation moves directly with enterprise success being defined in terms of employment growth. 131 P a g e

132 Av. Enterpreneuirial Orientation Figure 8.8: Entrepreneurial Orientation and Enterprise Success Enterpreneurial Orientation and enterprise success Av. Enterpreneurial Orientation 1 0 < 0 [ Employmnet growth Source: own survey result Conclusions This chapter has discussed the structure and growth of micro-enterprises based on the sample of 286 respondents surveyed two times in a period of 28 months. The character of the operator and the business has been analyzed based on the framework set for the study. The study has designed comprehensive ways of measuring success using subjective indicators, financial ratios and employment growth. The two round surveys helped to measure success indicators at ease and to yield a comparative analysis among these indicators. The demographic characteristics of respondents revealed that age and participation in the urban informal sector (UIS) are inversely related. The young with a productive age were observed to participate in the sector implying for the macroeconomic growth potential of the sector. The general trend now is that informal sector operators are not illiterates. However there is a gender gap: male operators are more educated than their female counter parts. Migrants dominate the percentage share of participation in the UIS. They were driven out of rural sector because of a strong push factor and initially started businesses from scratch with very small start-up capital and little knowledge of the activity although friends and relatives were observed to serve the best source of finance. They also expect informal sector jobs a priori since they have information about the sector and they accept it fits to their skill, level of education and competence when they first join the sector. Thus the analysis of why the operators have chosen the present activity varies over time on a given operator. A cross sectional analysis yielded that the majority has chosen the present activity because it was employment of last resort. An overtime analysis on same respondents yielded that for some entrepreneurs it is not employment of last resort but it is a better opportunity sector. Through the dynamics a number of firm specific and entrepreneur related factors were analyzed. Success was analyzed in the continuum by segmenting it into various growth categories/clusters. Firm specific and entrepreneur characters were analyzed against these growth rate clusters to see what determines success among MSEs. Generally speaking it has been born out that MSE operators are characterized by higher need for achievement, and were found to possess good internal locus of control but weak at risk taking propensity and lack self-efficacy leading to the inconclusive results on whether personality traits of entrepreneurs in the UIS of Addis Ababa generally possess positive traits that lead to success. This reinforces our argument that success needs to be analyzed against various growth groups. The entrepreneurial orientation of firms was also measured using eight item Likert method and this was found to be generally weak among our sampled MSEs. A weaker EO means that strategic decision making is also poor leading to a downward effect on success. Moreover since EO links other factors as argued in the conceptual framework, a poor EO means the indirect effect of determinants is also weak. 132 P a g e

133 The analysis of firm growth against age and size yielded that younger and smaller firms were found to be more successful (success measured in terms of employment growth) consistent with many literatures on this front. Also firm exit was found to be higher among younger and smaller firms. This was supported by literatures on grounds that smaller and younger firms with small scale operation can easily change activities or quit operation with minimum cost. References: Annen, K. (2001), social capital, inclusive networks and economic performance. journal of economic behavior and organization Vol. 50. pp Bates, T., (1990), Entrepreneur human capital inputs and small business longevity. The Review of Economics and Statistics vol. 72, no. 4 Baum, R. (1994), The relation of traits, competencies, visions, motivations, and strategy to venture growth. University of Maryland, college Park, MD Baum, J., Locke, E., and Smith, K. (2001), A multidimensional model of venture growth. Academy of management journal. Vol. 44, no.2, pp Begley, T. M. (1995). Using founder status, age of firm, and company growth rate as the basis for distinguishing entrepreneurs from managers of smaller businesses. Journal of Business Venturing, vol.10, pp Bigsten, A., and Gebreeyesus, M. (2007), The small, the young and the productive: determinants of manufacturing firm growth in Ethiopia Economic development and cultural change Vol,55. No.4. pp Bigsten, A., and Söderbom, M. (2005), What have we learned from a decade of manufacturing enterprise surveys in Africa? World Bank Policy Research Working Paper Campbell, C.(1992), A decision theory model for entrepreneurial acts. Entrepreneurship theory and practice. Vol.17, no.1, pp Carl Leidholm, (2002) Small firm dynamics: evidence from Africa and Latin America small business economics, 18: Central statistics Authority (2003a), Report on large and medium scale manufacturing and electricity industries Addis Ababa Central statistics Authority (2003b), Report on small scale manufacturing industries. A.A Central statistics Authority (2003c), Report on urban informal sector sample survey Addis Ababa, statistical bulletin 282. Corman, J., Perles, B. and Vancini, P. (1988), Motivational factors influencing high-technology entrepreneurship. Journal of small business management Vol. 26, no.1 pp Covin, J.G., Green, K.M., and Slevin, D. P. (2006), Strategic process effects on the entrepreneurial orientation-sales growth rate relationship. Entrepreneurship theory and practice vol.30, no.1, pp57-81 Dahl, M.S. and Reichstein, T. (2007), Are you experienced? Prior experience and the survival of new organizations. Industry and innovation. Vol.14, no.5, pp De Soto, H. (1989). The other path: the invisible revolution in the third world. Landon: Taurus. Du Rietz, A., and Henrekson,M. (2000). Testing the Female Underperformance hypothesis. Small Business Economics vol.14, pp 1-10 Association, Vol.1, pp Gebreeyesus, M. (2009). Innovation and microenterprises growth in Ethiopia. Research paper No. 2009/51. UNU-WIDER. Vol.1, pp Goedhuys, M and Sleuwaegen, L. (2009), High growth entrepreneurial firms in Africa: A Quantile regression approach. Research paper no. 2009/11. UNU-WIDER. 133 P a g e

134 Johnson, B.R., (1990), Toward a multidimensional model of entrepreneurship: the case of Achievement motivation and the entrepreneur. Entrepreneurship theory and practice. Vol. 1, no.3, pp Jovanovic, B. (1982), selection and the evolution of industry. econometrica. Vol.50, no3.pp Kristiansen, S. (2004), Social networks and business success: the role of subcultures in an African context. The American Journal of Economics and Sociology. Vol. 63, No. 5 pp Leidholm, C. (2002), Small firm dynamics: evidence from Africa and Latin America. Small business economics. Vol. 18, pp Leidholm, C. and Mead, D. (1993), The structure and growth of microenterprise in southern and eastern Africa: evidence from recent surveys. GEMINI. Working paper No. 36.New York. Lumpkin, G., and Dess, G. (1996), Clarifying the entrepreneurial orientation construct and linking it to performance. Academy of Management Review vol. 21, pp McClelland, D.C. (1965), N-achievement and entrepreneurship: a longitudinal study. Journal of personality and social psychology. Vol.1. pp McPherson, M. (1996). Growth of micro and small enterprises in southern Africa. Journal of Development Economics.Vol. 48, pp Mead, D. and Leidholm, C. (1998). The dynamics of micro and small enterprises in developing countries. World development. vol.26, no.1, pp Miller, D. (1983), The correlates of entrepreneurship in three types of firms. Management science. Vol. 29. pp Miner, J. B. (1982), The uncertain future of the leadership concept: Revisions and clarifications. The Journal of Applied Behavioral Science, vol. 18no.3, pp Ministry of Trade and Industry (1997), Micro and Small enterprises development strategy. FDRE/MOTI. Addis Ababa. Nelson, E. and De Bruijn. (2005). The voluntary formalization of enterprises in a developing economy- the case of Tanzania. Journal of international development, 17, Pakes, A. and Ericson, R (1987), Empirical implications of alternative models of firm dynamics Social Systems Research Institute. working paper. University of Wisconsin, Madison. Renzulli, L., Aldrich, E., and Moody, J. (2000), Family Matters: Gender, Networks, and Entrepreneurial Outcomes. Social Forces vol.79. no.2 pp Schumpeter, J.A. (1934), The Theory of Economic Development. Harvard University Press, Cambridge, MA Sexton, D., & Smilor, R. (1986), The Art and Science of Entrepreneurship. Cambridge, MA. Shane, S., Locke, E., and Collins, C. J. (2003), Entrepreneurial motivation. Human resource management review. vol.13, no. 2, pp Van Dijk, M.P. (2006) The role of informal flow in redistributing economic growth, the case of Dar Es Salaam. World Bank report. Van Dijk, M.P. (1996), The urban informal sector as new engine for growth: theoretical development since Harwood Academic publishers. pp Wiklund, J., Patzelt, H., and Shepherd, D. (2007), Building an integrative model of small business growth. Small business Economics vol.32. pp World Bank (2007), Urban labor markets in Ethiopia: Challenges and prospects. Vol.2: synthesized report. World Bank. Washington 134 P a g e

135 Chapter 9: Micro-privatization of Solid Waste Collection Service: The case of Addis Ababa City Mesfin Tilaye and Mien Pieter Van Dijk 135 P a g e

136 Part V Urban Agriculture Chapter 10: The Role of Small Urban Centers in Improving Rural Livelihood: Feresmay, Rama and Maykinetal small urban centers in Central Zone of Tigray, Ethiopia Gebremedhin Yihdego & Bihon Kassa Background of the study It is believed that when a country becomes more developed measured in terms of per capita income, the population living in the urban areas will be larger. Nowadays, it is the least developed countries that have a faster rate of urbanization. According to Todaro (2000), the rapid growth of cities in developing countries is one of the most significant of all post war demographic phenomena and the one that promises to loom even larger in the future. He further stated that, with regard to particular cities, current rate of urban population growth range from under 1% per annum in two of the world s largest cities, New York and Tokyo, to over 6% per annum in many African cities including Nairobi, Lagos, and Accra. However, the rapid growth of urban poverty and deepening inequalities in cities are the main concerns. Solutions to today s urban problems, call for good urban governance and appropriate strategies and intervention to ensure local development, whether the issues concern the infrastructure, housing, service provision, environmental quality or violence (UN, 2001). Considering the first city bias, the largest or the first city receives a larger share of the investment and incentives for private investment in relation to the country s second city and the second city in relation to medium and small sized tows. Furthermore, Hansen (1990) has strengthened this assertion as large cities and particularly national capitals of developing countries are given preference in the allocation of investment that support industry, create employment opportunities, provide health, education and social services, and offer amenities to attract better domestic and foreign investment. This leads to concentration of population in large cities, mainly by migration, which has created sever urban management problem such as more pressure on the services provided and infrastructure, high unemployment rate, slum and shanty areas, etc. To ensure a balanced population distribution and managed cities, the new perspective is to increase and emphases on small towns. Emphasis on small towns helps to control migration to congested cities and to enhance their contribution to the development of the rural communities. This paper deals with the role small urban centres have in improving rural livelihood. It shows how the small towns serve as input and output markets for rural households. It also deals with the public and administrative services that rural households receive in the small towns. 136 P a g e

137 Literature Review The Concept of Rural-Urban towns and Rural Livelihood Small urban towns may be defined differently under deferent contexts. The demographic and economic criteria are used to define urban and rural areas although the criteria can vary widely between different nations (Tacoli 1998). In Ethiopia, demographic and economic criteria are used to define rural and urban areas. According to the Ethiopian Urban Plans Proclamation No. 574/2008 Article 2/8, Urban centre means any locality with established municipality or having a population size of 2,000 or above inhabitants of which 50% of its labour force is primarily engaged in non-agricultural activities. For the sake of administration and management, urban towns in Tigray are divided into three: Infant/emerging, Town and Metropolitan (Proclamation 107/1998 Article 9/1). According to this proclamation, an emerging town is a town with no less than 2000 population provided that it is recognized as a town by the regional government. The growing town can have the status of municipal administration according to the regulation to be enacted by the regional government executive committee (Proclamation 107/1998 Article 29/1). Thus, the above definitions of emerging and growing towns comply with the description and purpose of this research project. This means the emerging/infant and growing towns are considered in this research as small urban centres. Another important concept in this research is household livelihood. A livelihood comprises the capabilities, assets (including both material and social resources) and activities for a means of living (Scoones 2009). Livelihoods include specifically, natural, physical, human, financial and social assets. Human capital emphasises the importance of labour, health, education, and skill assets required to achieve household livelihood (Ellis, 2000 in Boli 2005) in Educated and trained and healthy labour is important to increase productivity and thereby improve livelihoods. Financial capital refers to the amount of money and financial assets such as loan, deposits, shares etc., and household possessions, which can be converted into other assets though the purchase of household consumable items or the conversion into other items such as livestock, commercial items or fixed assets (Boli 2005). It can be also used to buy agricultural inputs. The Role of Small Urban Towns in Improving Rural Livelihood Small urban towns provide access to markets for agricultural and non-agricultural goods produced by rural households, improved access to inputs needed for agricultural production and better access to consumer goods and employment and investment opportunities to both kinds of residents and attract temporary and permanent migrants from the rural areas (Kammeier, 2003; Dercon and Hoddinott 2005). According to Dercon and Hoddinott (2005), urban markets are important sources of demand for rural products and rural residents are sources of demand goods sold in urban areas. They further stated that small and intermediate urban towns provide improved access to public services such as health, education and administrative services to rural residents. Small urban towns serve as market centres for the production and/or distribution of goods and services to the rural area. The location of service supply points supplying a variety of services, agricultural inputs and consumer goods to the rural areas plays a crucial role in rural development (Tacoli 1998). Tacoli also wrote that proximity to urban markets improves farmers access to the inputs and services required to increase agricultural productivity. The urban towns serve as centres for agricultural inputs such as fertilizer and farming tools which are important for agricultural intensification. Small urban towns serve as markets for agricultural and non-agricultural products for the small urban town population and function as nodes in a wider marketing network, channelling demand from outside the small urban towns (Satterthwaite and Tacoli, 2003; Kammeier 2003). They serve as market centres for rural agricultural products either as direct consumers or as transit markets. They are major markets for agricultural inputs and sales of crops and livestock for rural households (John & Stefan 2005). This market 137 P a g e

138 opportunity motivates farmers to improve agricultural productivity and thereby their income (Kammeier 2003). Access to markets is a prerequisite to increase rural agricultural incomes, and the proximity of local small urban towns to production areas is assumed to be a key factor. Whether small urban towns develop as markets for rural producers, among others, depends on a number of factors such as accessibility and affordability of transport and roads infrastructure; the presence of local urban demand which is much influenced by population and income levels and links with a wider network of markets and the relations between producers and traders (Satterthwaite and Tacoli, 2003). Traders are the main link with urban markets. They often provide a vital link for small and diversified production flows that are not sufficiently profitable to attract large-scale trading organizations. According to Pedersen (2000), Traders are a vital link between farm and non-farm activities and between local markets and national and international markets. They often provide credit and technological advice to producers. Small towns provide public services such as education, health and administrative services to rural areas (Bryceson 1999; Kammeier 2003; Satterthwaite & Tacoli 2003). Higher-level health and educational rural services are located in small urban towns. The health and educational services include clinics/health centres and high schools for both rural and urban population. Furthermore, the services rural people receive from small urban towns include agricultural extension, credit services, postal and telephone services, transportation services, etc. Access to improved road infrastructure results more access to transportation services and reduced transportation cost (Dercon and Hoddinott 2005). This means the connection of the small urban towns with the rural areas is assumed to reduce costs and improve access to a variety of services. The basic services have a major impact on livelihoods of the rural people for they improve individuals and households capabilities. For instance, educational service skills knowledge and information are generally seen as a prerequisite for households to be able to take advantage of many new livelihood opportunities. Access to education is generally required for the formation of human capital (Boli 2005). Moreover, credit enables individuals and households to widen their income earning options. According to Mendola (2010), the mobility of people for temporary or permanent labour purposes is a routine part of agricultural activity. People migrate to smaller towns from rural areas for search of education and health services and employment opportunities (Braun 2007). Migration is the source of remittance which can play a very important role in supplementing incomes in receiving households (Dercon and Hoddinott 2005; Braun 2007). Therefore, one of the key potential roles of small urban towns is that of attracting rural migrants from their surrounding rural through demand for off-farm labour and thereby increase local opportunities for income diversification and decrease the pressure on larger urban towns (Satterthwaite and Tacoli, 2003). Off-farm activities help as a means of employment or additional income for the farmers who lack land or have inadequate land, or suffer from seasonal income fluctuations. The migrants can be both the seasonal workers and those who want to change their settlement from rural to urban. An essential pre-condition for migrants moving to small urban towns is the availability of employment in different activities such as trade, services and construction. Migration is increasingly recognized as an essential component of the livelihoods of most households. Methodology and Study area Description Study Area Description Tigray is one of the National Regional States of Ethiopia found in the northern part of the country. It is bounded by Eritrea in the north, Sudan in the West, Amhara National Regional State in the south and Afar National Regional State in the East. The Region covers approximately 54,527 square kilometres and has a 138 P a g e

139 total population of 4.33 million of which 82% live in rural areas (Central Statistics Authority - CSA 2007). The region has 34 rural Woredas (districts) and 12 urban Woredas. There are also towns having municipal status but subordinated to the rural Woreda administrations. The study area covers the small urban towns categorized as emerging/infant or small towns in Tigray National Regional State in the Central Zone, Ahferom, Mereb-Leke and Worie-Leke woredas (Figure 1). The small towns of the study area are Fersmay, Rama and Maykinetal while the rural Tabias include Adizata, Tahtay-Da-Ereka, Edaga-Hamus, Miquan, Mayweine, Medhin, Werie, Selam and Felafil (Figrure 10.1). The economic base of the region is dominantly agriculture. The economic base of these small urban towns is mainly merchandise, service businesses and agriculture while the economic base of the rural households is dominantly agriculture. Figure 10. 1: Map of the study area Data type and source In this research a mix of qualitative and quantitative methods is used. The qualitative method focused on focus group discussion while the quantitative method involved household survey. This mixture of qualitative and quantitative method of data collection has been gaining acceptance in the literature on development research methods (Bryman 2008). Moreover, the research used both primary and secondary sources. One of the primary source instruments was questionnaire that was distributed to the rural household respondents in Tabias surrounding the small urban towns. The second primary instrument was in depth focus group discussion with different stakeholders such as woreda administration representative, town administrators, high school directors, woreda educational office heads, selected Tabias and villages chair persons, Tabia rural development office supervisors and health centre heads from the town and rural areas. Secondary data were collected to complement the primary data from publications, documents from urban and rural organizations and institutions, woreda administration offices. Sampling and survey design As shown in figure 10.1, the study areas covered were three small urban towns and their surrounding rural Tabias in the central zone of Tigray Werie-leke, Ahferom and Mereb-leke Woredas (Figure 1). The unit of analysis of this research are the small urban towns and rural Tabias. From the rural Tabias around Feresmay 139 P a g e