The Economy

Economic History

Harar has an important place in the social, political, and economic history of Ethiopia. The region has long been the center of Islamic teaching, hub to international trade, and the powerhouse of major economic activities in part of today’s Ethiopia.

The gold, bronze, and brass coins that were minted by the ancient Harari are important footprints of the level of early civilization that existed in the region. This makes the ancient Harari the second in East Africa only after the Axumite kingdom in using its own coins. This is in fact a basis to the emergence of modern economic activities in Ethiopia such as trade and finance.

Harari, in addition to trade and finance, has great contributions to agricultural practices. Harar town has long been surrounded by agricultural land. Vegetables grow in the first ring along the town, and grains grow in the second ring. The last ring is open field. This ancient agricultural practice is similar to what has been portrayed by the von Thünen theory, a major contribution to urban and agriculture literature by the 19th century German economist, von Thünen.

Ethiopia is witnessing an important episode in harnessing its water resource to deal with the adverse consequence of recurring drought in the country. The Harari region has an exemplary experience of efficient utilization of limited water resource to increase agricultural productivity and ensure food security in the region.

Harar is also known to have contributed to the flourishing of modern economy such as banking, telecommunication, and transport. The Harar town was one of the beneficiaries of banking and telecommunication services in modern Ethiopia. Modern transport routes such as road and railway were first connecting Addis Ababa and the region.

Economic Structure

According to the regional income account of the Harari regional state, the service sector has the major share in the economy of the regional state accounting for 52 per cent of the gross regional product between 2008 and 2012. The industry and agriculture sectors had an equal share of 24 per cent. Within the service sector, trade, and transport and communication had been the leading subsectors accounting for 18.5 per cent, and 15.2 per cent of the gross regional product, respectively.

The agriculture sector was dominated by crop production. Crop agriculture accounted for 74.1 per cent of the value added in the agriculture sector, and 17.7 per cent of the gross regional product.

The major contribution of the industry sector to the gross regional product came from the construction subsector. It had a share of 12.6 per cent in the gross regional product and 52.1 per cent of the value added in the industry sector.

Volume of the Economy

AccThe gross regional product (GRP) of the region stood at 2.2 billion Birr at current prices and 2.1 billion birr in real prices in the year 2012. This is equivalent to a per capita GRP of 10,673 birr or 654.8 US dollar at current market prices. This level of per capita income has been attained as a result of a fast economic growth of 15.9 per cent in the region between 2008 and 2012. This growth has also been broad based in the sense that the number of people below poverty line has significantly declined from 27 per cent in 2005 to 11.1 per cent in 2011.


Public investment in the social and economic infrastructure and emphasis given to urban development in Ethiopia boosted the economy to register an average growth rate of 11 per cent during the period 2006 and 2010. This has created more demand and set momentum for further growth. Consequent plans of the nation were informed by the need to accompany the high growth episode with structural change wherein economic activities shift from sectors of low productivity to sectors of high productivity. Accordingly, the growth and transformation plan (GTP) has been put in place since 2011. One of the major achievements of the first phase of GTP (2011- 2015) was a 10.2 per cent average growth rate of GDP.

Similarly, the urban development strategies and the associated investments in social and economic infrastructure that has been in place since 2006 have significant positive impacts on the socio-economic development of the Harari region. While development efforts during the first phase of GTP laid foundations for further economic transformation, deepening of such structural transformation efforts has been underway in the second phase of GTP under the program of Harari revitalization package.

Economic Growth and Status of Structural Change

High economic growth, high rate of capital accumulation and structural change are the key elements of structural transformation. Urban development efforts in the Harari region earned the region with double digit economic growth as high as 15.9 per cent during 2008 and 2012. About 8.4 percentage points or 53 per cent of the growth in the gross regional product was contributed by the service sector. The industry sector has contributed to 5.3 percentage points or 33 per cent of the growth in GRP. The agricultural sector followed the service and industry sectors contributing to the 14 per cent of the growth in the GRP.

The growth in the value added in the service and industry sectors faster than the value added in the agriculture sector led to the fall in the share of the agriculture sector from 31.8 per cent in 2008 to 23.9 per cent in 2012. On the other hand, the share of the industry sector in the regional economy surged from 18 per cent in 2008 to 24.2 per cent in 2012.

Given the fact that the Harari regional state is relatively more urbanized, the higher share of the service sector in the region’s economy is not unexpected. Nevertheless, the contribution of the sector to sustainable growth in the region as required by the stylized facts of structural transformation depends on efforts that will be made to integrate the sector to the global market. An important resource the region can count on to achieve such a goal is the prospect of tourism industry.

Transport and communication, constraction, trade, and manufacturing are the four top subsectors which led the high growth in the Harari economy. The four subsectors accounted for 10.7 percentage points (67 per cent) of the 15.9 per cent growth in GRP for the period between 2008 and 2012. The six top subsectors including crop agriculture and public adminstration accounted for 87.5 per cent of the growth registered in the region during the period.

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