Classification of Business Challenges and Opportunities in Ethiopia, 2008-2011

The potential of different business approaches to reduce poverty and marginality depends on the characteristics of different regions and people living in these regions. Here, (a) population density, (b) accessibility, e.g. in terms of mobile phone, internet and road connections, as well as (c) the predominant form of livelihood and/or farming systems may be important factors determining market sizes and transaction costs and thus incentives to invest in these markets. This map is an overlay of these different indicators. Greenish colors show irrigated or perennial areas, brownish colors pastoralist, agro-pastoralist and arid areas and reddish colors indicate areas dominated by different other farming patterns. The lighter the color the lower the population and road density. For the classification of population and connectivity values being ‘high’ or ‘low’ the national mean value is used as threshold. Data: Population density: CIESIN (2011) Connectivity: CSA et al. (2008) Farming systems: HarvestChoice (2001) Quality/Lineage: Data is from different time periods and different sources. To identify the data sources, please look at the abstract. Purpose: Amongst other factors, the potential of different business approaches to reduce poverty and marginality depends on the characteristics of different regions and people living in these regions. Here, (a) population density, (b) accessibility, e.g. in terms of mobile phone, internet and road connections, as well as (c) the predominant form of livelihood and/or farming systems may be important factors determining market sizes and transaction costs and thus incentives to invest in these markets: If population density is low, it is more difficult to create a market as, ceteris paribus, market size is smaller. Transaction costs might increase, amongst other reasons, because the search for customers is likely to be more difficult if people are widely dispersed. Accessibility in terms of road connections is important to reduce transportation costs. Furthermore, transaction costs rise even more than proportionally with distance (Staal et al., 1997). However, such costs can be reduced by reducing the need to travel, i.e. the possibilities to exchange information with other means such as ICT (De Silva and Ratnadiwakara, 2008). Thus, accessibility in the sense of a general connection to other areas and people is an important element determining transaction costs and thus incentives for companies to invest in a certain region. And finally, in a country like Ethiopia the predominant form of livelihood may play an important role. Pastoralists move around and are thus more difficult to locate. As a result, it may be more costly to create a market because it is more difficult to establish stable supply chains or the established supply chains are only usable for a certain part of the year. In non-pastoralist areas, people in regions where two or three harvests per year are possible may enjoy less volatile cash flows, which allows for stabler consumption. Furthermore, risk is reduced as incomes do not depend on only one harvest per year. Less volatility in consumption reduces transaction costs for firms as they need to spend less on information about and adaptation to seasonal changes. Furthermore, especially for companies selling agricultural inputs, it may be more worthwhile to invest in supply chains in regions where more harvests per year are possible as people may buy inputs more than once a year.