Urbanization and Its Economic Opportunities

Cities and Towns Are More Productive Places - Economies of scale and agglomeration effects make enterprises—and people—in large cities more productive than those located in small towns or rural areas. The large and diversified pool of labor; the greater local market; easier access to suppliers and specialized services; lower information and transaction costs; more diversified contact networks; and an environment that encourages innovation are among factors that increase the potential productivity of cities.

A well-managed urban population growth provides a huge opportunity to shift the structure and location of economic activity from rural agriculture to the larger and more diversified urban industrial and service sectors. Ethiopian labor force has doubled in the past 20 years and is projected to rise to 82 million by 2030, from 33 million in 2005. Therefore, creating job opportunities in urban areas will be essential if Ethiopia is to exploit its labor force. Urban areas, contribute 38 percent of gross domestic product (GDP) though employing only 15 percent of the total workforce, which is becausemostlyhigh productivity sectors located in urban areas. If well managed, urbanization could be an important catalyst to promote economic growth, create jobs, and connect Ethiopians to prosperity. Ethiopiahas projected to reach middle-income status with an estimated gross national income per capita of US$1,560 by 2025.Economic activities in cities account for 70 percent of global GDP (USAID, 2013).

With regard to economic activities, urban centers are main areas where industrial and service sectors are the main source of employment and means of livelihood. These sectors are main source employment and productivity. Urban economic activities have far reaching implications in economic transformation. In developing countries where Ethiopia is not the exception development is ‘urban biased’. However with growth in urban size, most of the migrants are uneducated and unskilled, they end up informal sector which accounts for 93% of all new jobs and 61% of urban employment in Africa (AFDB, 2012). Similarly, in Ethiopia 38% of urban employment is in informal sectors (World Bank, 2013).