Introduction

Urbanization According to Abdullah (2009), 56% of developing countries population lived in urban areas by 2030, and that of sub Saharan African urban population reach 49% by 2025.Anestimated 180, 000 people move into cities each day and expectedtogain1.4billion peoplebetween2011and 2030.

In Ethiopia, the level of urbanization is lower than Sub-Saharan average, but is proceeding at a fast pace. Ethiopia’s urban population is estimated at 16 percent in 2007 (CSA, 2008), while in Western, Middle and Eastern Africa the urban population share in 2005 already reached 42, 40 and 22 percent, respectively (UN Population Division, 2009). However, in Ethiopia, urban population grew at an average annual rate of 3.8 percent from 1994 to 2007 (1994 and 2007 Population and Housing Census), compared to a growth rate of 2.3 percent for the rural population. The rate of urbanization is expected to further accelerate in the coming years, averaging 3.9 percent between 2015 and 2020, compared to an estimated average growth rate of 3.1 for Africa (UN Population Division, 2009). As a result, the Ethiopian urban population share is expected to increase by 70 percent and to reach about 27 percent by 2035 (UN Population Division, 2009).

The urban economy: where most economic growth is happening, but from a vulnerable base, africa’s economic “growth tragedy” of the past decades has disappointed hopes and expectations of all sectors. But “urbanization without growth” does not, in fact, describe what has been happening for most of the African countries examined, which show a linear relationship between urbanization and economic growth. Moreover, the economic growth that has taken place in the 1990s in Africa derives overwhelmingly from industry (including construction and mining) and services sectors, which are mainly urban-based. With very few exceptions, these secondary and tertiary activities accounted for at least 60 percent, and averaged almost 80 percent of GDP growth in Sub- Saharan Africa in 1990-2003(Christine, 2005). This is even more true of countriesthat have been relatively good performers during the growth spurt of the late1990s, as almost all of them derived most of their boost in value-added from the non-agricultural sectors. To the extent that informal activity (estimated to account for 93 percent of all new jobs created and 61 percent of urbanemployment in Africa) is undercounted statistically, the urban share of the economy is even greater.