The share of fuel import in total imports of goods for Ethiopia rose from 12% in
2005/06 to 20.1% in 2010/2011. In 2008 the country¶s oil bill exceeded the total
export earnings. The high and often fluctuating fuel prices have frustrated
development efforts in the country. This has triggered policy makers to review the
energy development strategies and search for mechanisms that minimize dependence
on high-cost imported fossil oil. An important mechanism identified in this area is to
substitute fossil fuels with domestically produced bio-fuel. Currently, investments in
biofuel with the aim of producing ethanol and bio-diesel are underway in different
parts of the country.
This study investigates the impact of biofuel investments on growth, poverty and food
security in Ethiopia using a dynamic computable general equilibrium (CGE) model
linked to micro simulation (MS) model. The CGE model uses the 2005/06 social
accounting matrix (SAM) and the MS model uses the 2004/05 Household Income,
Consumption and Expenditure (HICE) survey. The results suggest that biofuel
investment provide a new opportunity to enhance economic growth and poverty
reduction. Our results also show the complementarities between µbiofuel¶ and µfood¶
production.