Unlocking Firm Level Productivity and Promoting More Inclusive Growth

Rapid and consistent economic growth of
Ethiopia over the past decade has contributed to reducing
the number of people living in poverty. The Government of
Ethiopia has created the growth and transformation plan
(GTP), focusing on two overarching themes: fostering
competitiveness and employment, and enhancing resilience and
reducing vulnerabilities. This plan recognizes that for
poverty reduction and economic growth to be sustainable, the
Ethiopian economic structure will have to undergo a
fundamental transformation. In accordance with a focus on
poverty reduction and economic growth, the GTP has
identified five main levers for change: public sector
investment in infrastructure to lay the ground for private
sector development, enhancement of policies and regulations
to provide an environment conducive to competitiveness and
productivity, expanding access to credit for small and
medium size enterprises, provision of training and education
to augment the supply of skilled labor, and improved access
to land. Technological adoption and innovation will play a
crucial role in delivering the goals laid out in the GTP.
Participation in foreign markets also induces firms to
become more innovative, a phenomenon known as learning
through exporting, as observed among Ethiopian leather
exporters. Another vital determinant of innovative activity
is the accumulation of human capital and the skill level of
the workforce. This study seeks: (i) to empirically analyze
the extent of innovative activities that formal firms are
undertaking in Ethiopia; (ii) to conduct a review of the
existing innovation landscape; and (iii) to identify
opportunities to foster innovations at the base of the
pyramid (BoP) in Ethiopia. This study is structured as
follows: chapter one gives introduction. Chapter two
provides a detailed overview of the characteristics of
growth and innovation, by providing key insights based on
the enterprise survey analysis on the characteristics,
motivations, operational and market environment and
constraints of the innovators in Ethiopia. Chapter three
assesses the innovation landscape in Ethiopia, by looking at
the governmental and private agencies responsible to promote
innovation, as well as active programs, and donor
initiatives which may play a role in promoting firm level
and pro-poor innovations. Chapter four provides policy
recommendations to promote innovation in Ethiopia both at
the firm level and in the form of pro-poor initiatives.