The Ethiopian economy is based on agriculture, which accounts for half of GDP and about 60% of export revenue (coffee being the main source of income). The country is therefore very sensitive to variations of world prices on basic foods, just like the global slump in coffee prices since the mid-1990s. Another consequence of its reliance on agriculture is that it is extremely vulnerable to climatic changes, in particular droughts.
Not to help with that, the war with Eritrea from 1998 to 2000 has also had a devastating impact on the economy. Following the war the IMF (International Monetary Fund) supported the creation of a program to reduce poverty in Ethiopia, which was aimed at restoring its macroeconomic stability.
What does this mean concretely? The program focused on keeping inflation low and under control, stabilizing the exchange rate in currency markets, and last but not least generating sustainable GDP growth. A stable economy helped aid donations rise significantly since then. By the end of 2003, the country’s economy was finally growing rapidly, and was benefiting from favorable weather conditions.
Like every time an economy grows too rapidly though (i.e. demand higher than the capacity of the economy), high inflation threatened all these efforts but it was eventually brought back to normal. Relatively stable growth has been achieved since then (annual GDP growth around 11% for the past 5 years), and you will see what have been its impact on poverty alleviation in the country.
Ethiopia has started a difficult process of market development, trade liberalization, institution- and infrastructure building. That kind of development takes a while and no matter what the country undoubtedly remains in the group of the "marginalized" economies of the world. Moreover the impact of market liberalization - started in the early 1990s - on welfare shows that while one group of the poor has been able to take advantage of the improved economic environment, another group has become increasingly marginalized because of reduced access to social safety nets.
This illustrates that liberalization alone will not solve the challenge of reducing Ethiopia's high poverty rate, as opposed to what many experts in international organizations seem to think. Meanwhile, less biased economists, including at the WTO (World Trade Organization), argue that international trade liberalization should always be complemented with redistribution mechanisms (social security, indemnities, skill training, education...). According to them, that's because economic liberalization is often detrimental to poor workers' living conditions - both in developed and developing countries.
The end of 2002 - early 2003 saw a decline in donations combined with a drought which resulted in massive food shortage affecting up to 12.5 million people, who became dependent on international food aid only. Along with plummeting donations, possibly because everyone's attention was focused on the war in Iraq in 2003, the UN described the situation in Ethiopia as a "huge crisis" and warned it was quickly bound to get worse.
The Ethiopian government reacted with an ambitious program that moved two million people from the dry and infertile highlands to the unused land in the West and South of the country. But the result was pretty much a fiasco: resettlement camps that were to be set up with schools, water and facilities were not ready.
Malnutrition and diseases killed so many that some even left the camps to return to the desolate highlands. More recently, world commodity prices have not only fallen sharply but the ongoing global economic crisis is likely to damage the country's economic growth with declining demand for its exports. This calls for an urgent macroeconomic stabilization, otherwise while other African countries are developing fast, the fight against poverty in Ethiopia won't be won before several more decades.
Despite roads being the dominant mode of transportation, Ethiopia’s road infrastructure is dangerously underdeveloped, unfit and inappropriate to its needs. Ethiopia has actually the lowest road density per capita in the world. Poorness in road infrastructure is an obstacle to economic integration, development of the domestic market, diffusion of primary goods and export growth among other things.
Therefore it's not surprising that the government made the extension of the road network a crucial part of its development strategy (with the help of the World Bank, the European Union, and the African Development Bank among others).
With a ratio of 0.53 lines per 100 population, Ethiopia ranks among the bottom African countries in term of telephone lines per person. This means that more people are being left out, not only socially but also economically considering the tremendous impact of ICTs (information and communications technologies) in a country's economy.
This situation represents an unbelievable waste of human resources and time that could otherwise help to substantially reduce the poverty rate in Ethiopia by increasing efficiency and opportunities (market-wise) for the people. On the bright side, as in many other sub-Saharan countries, the cellphone now provides an incomparably cheaper alternative.
This is an opportunity for the population to "leapfrog" the landline technology and directly adopt the wireless one.
Thanks to large scale investment in state schools, primary schools enrollment has more than doubled since 1990. Moreover, the government assured this will go along with the construction of facilities, training of new teachers, systematic use of textbooks, and the use of quality assessment mechanisms for education.
As you can see, everything is left to do. Good training and quality teaching in the upper levels of education becomes as well a vital problem if the government is to consistently educate its people and drag them out of poorness by teaching them valuable skills. Watch here how a non-profit organization is providing Ethiopian students with free online education material from the US.
HIV/AIDS is one of the main sources of poverty in Ethiopia. The disease is severely eroding economic growth through huge deficit on public resources, loss of investment opportunities as well undermined adult labor and productivity. The average in the country is 1/13 of adults infected, while in urban areas, it's more than 1/6 adults.
The Ethiopian government approved a comprehensive HIV/AIDS policy in 1998 aimed at limiting the spread of the disease as well as decreasing the vulnerability of affected individuals and communities. In this war against destitution, reducing the transmission of the disease is the key element in confining the AIDS plague.
A lot of research has shown time and again that except times of drought, the country should be able to enjoy decent food security conditions at the national level. However, droughts do occur far too often (more and more experts link this to global warming), and the problem of the insufficient road network prevents proper food distribution.
Besides, the government needs to push for more systematic use of irrigation which is essential to reach long-lasting food security. But as you can see, this problem can't be solved in a day and during this transition the country will have no other choice but to rely on continuous food aid ("continuous" being a key characteristic of development programs for landlocked countries such as Ethiopia).
Another essential aspect for Ethiopia's economic development is the investment in infrastructure. It will provide the country with useful resources to overcome some of its inherent poverty due to limited assets. Improving infrastructure is known to provide significant growth effects for countries that lack natural or strategic resources (e.g. access to the sea).
But the risk is that investments keep on being focused in specific geographic areas (big cities), so that the marginal ones eventually end up even more marginalized by the time the country becomes more integrated into the global system.
Liberalization and marketization will also bring new dangers. Recent events in the international economy, such as the international food price rises, high fuel prices, and the worldwide recession offer good examples of how Ethiopia will become increasingly sensitive to global crises.
Food and fuel price increases alone led to a surge in food prices by more than 50% between 2007 and 2008. In 2011 food prices soared by 200 to 300% in the region.
Major challenges to the government include weak infrastructure, low agricultural productivity, structural food insecurity (i.e. due to the structure of the food organization/system including lack of roads), environmental degradation, and weak human and bureaucratic capacity.
Nonetheless, modest improvements in institutional efficiency (reform of the legal system, contracts, property rights), maintaining peace and stability, and improving the functioning of public services, have helped reduce poverty in Ethiopia. Still the country is not likely to achieve the United Nation's Millenium Development Goals.
If you're still hungry for more information on statistics on poverty in Ethiopia, see this page that gathers data on all sorts of factors (child mortality, population below the poverty line, etc...)