Ethiopia, a vital member of the Common Market for Eastern and Southern Africa (COMESA), has hesitated to join the COMESA Free Trade Area (FTA) since its inception in 1994. This caution stemmed from concerns about potential dominance by more economically advanced member states such as Egypt and Zimbabwe, particularly when Ethiopia was recovering from civil conflict and had limited industrial capacity. However, Ethiopia’s economic landscape has undergone significant transformation in recent years, marked by remarkable progress in industrial development, liberalization of the financial sector, and the implementation of regional economic integration policies. This analysis contends that the present juncture presents an ideal opportunity for Ethiopia to become a part of the COMESA FTA, particularly given its alignment with broader regional and continental trade initiatives, including the African Continental Free Trade Area (AfCFTA), the Intergovernmental Authority on Development’s (IGAD) Minimum Integration Plan, and the African Union’s Agenda 2063. Ethiopia’s recent economic reforms and burgeoning industrial prowess underscore the benefits and necessity of participating in the FTA.
A changing landscape: From protectionism to regional integration
In the 1990s, Ethiopia emerged from civil war and encountered challenges in industrialization and economic growth (Degefa, 2001). At that time, participation in a free trade area like the COMESA FTA was viewed as a potential threat to Ethiopia’s emerging industries. The apprehension of facing regional competition from more established economies prompted policymakers to adopt a protective stance, prioritizing the development of local industries before opening up to international trade. The national market’s current status contrasts with substantial economic progress. Ethiopia has emerged as a leader in the textile and advancement industry. Digitalization has taken root, and the government has implemented meaningful economic reforms. These changes and regional integration efforts by COMESA, AfCFTA, and IGAD present a unique opportunity for Ethiopia to strengthen its position on the COMESA FTA.
Reconsider improved industrial landscape and opening economy Growing textile and apparel industry
Ethiopia’s textile and apparel sector has seen remarkable growth, with an average annual export increase of over 50% in the last decade, positioning it as one of the country’s leading sectors (EIC, 2020). This growth has been driven by establishing industrial parks such as the Hawassa Industrial Park, attracting substantial foreign direct investment and contributing to thousands of jobs. Ethiopia’s textile industry is now well-placed to compete regionally and globally, benefiting from labor and manufacturing efficiency cost advantages. To further enhance their competitiveness, joining the COMESA Free Trade Agreement would enable Ethiopia’s textiles and apparel products to access regional markets duty-free. Currently, Ethiopia faces tariffs of over 30% when exporting to COMESA countries, putting its exporters at a significant disadvantage compared to FTA member countries enjoying duty-free access (COMESA 2019). Participation in the FTA would unlock substantial trade opportunities for Ethiopia, enabling its products to compete more effectively in markets such as Kenya, Uganda, and Sudan.
Economic reforms and opening the financial sector
Ethiopia’s recent financial sector liberalization is in line with the goal of promoting regional trade. The Ethiopian government has started allowing foreign investment in banking, insurance, and telecommunications sectors. These reforms aim to stimulate private sector growth, improve financial inclusion and attract foreign direct investment (FDI) (World Bank 2020). By joining the COMESA FTA, Ethiopia can complement these reforms by strengthening regional economic relationships and promoting cross-border investment, thus accelerating the development of its growing private sector. Moreover, the liberalization of the financial sector can facilitate trade by enhancing access to financial services for businesses involved in regional commerce. Efficient financial transactions across borders are essential for exporters and importers, and the liberalization of Ethiopia’s financial market will further improve trade efficiency
Alignment with AfCFTA, IGAD, and Agenda 2063 AfCFTA and regional trade synergies
The African Continental Free Trade Area (AfCFTA) aims to establish the largest free trade area globally, covering 55 countries and a market of over 1.2 billion people. Suppose Ethiopia joins the Common Market for Eastern and Southern Africa Free Trade Area (COMESA FTA). In that case, it will harmonize its trade policies with AfCFTA’s broader objectives, thus contributing to the overarching goal of increasing intra-African trade by more than 50% in the coming years (Tralac, 2020). This step would strategically position Ethiopia to leverage AfCFTA’s objective of eliminating tariffs on 90% of goods, thereby promoting a unified market for goods and services across the continent. In addition, membership in the COMESA FTA would allow Ethiopia to practice regional economic integration on a smaller scale, thereby easing its transition into the larger AfCFTA framework. The benefits of increased regional trade under COMESA would help Ethiopia capitalize on more extensive market access, enabling it to prepare for more extensive continental trade competition
IGAD’s minimum integration plan
As a member of the Intergovernmental Authority on Development (IGAD), Ethiopia is already actively participating in regional economic cooperation efforts focused on peace, security, and development. IGAD’s Minimum Integration Plan encourages member states to synchronize trade policies, promote regional economic integration, and enhance infrastructure development. By becoming a part of the COMESA FTA, Ethiopia would be taking a practical step towards aligning with IGAD’s broader objectives of regional integration and economic growth (IGAD 2017). Harmonizing trade policies within COMESA and IGAD would make it easier for Ethiopian exporters to access East and Southern Africa markets. It would also enhance cross-border cooperation in infrastructure development, which is vital for trade facilitation.
AU Agenda 2063 and continental development
The African Union’s Agenda 2063 envisions an integrated, prosperous, and peaceful Africa, driven by its citizens and representing a dynamic force in the global arena. Key pillars of this agenda include economic integration, the development of a single continental market, and the promotion of industrialization and innovation. Ethiopia’s joining of the COMESA FTA aligns directly with Agenda 2063’s aspiration for deeper trade ties among African nations (African Union, 2015). By participating in the FTA, Ethiopia would bolster its own economic growth and contribute to the broader goal of continental unity and economic prosperity.
The strategic benefits of joining COMESA FTA Reducing tariffs and enhancing export competitiveness
One of the most significant advantages of joining the COMESA FTA is the elimination of tariffs on intra-regional trade. This change would drastically reduce the cost of Ethiopian exports to other COMESA member countries, making products such as textiles, coffee, leather goods, and agricultural produce more competitive. The textile industry, in particular, benefits greatly, as duty free access would open up markets across the COMESA region.
Accessing a growing regional market and promoting economic diversification
The COMESA region has over 560 million consumers and a combined GDP of over $769 billion (COMESA 2021). By joining the FTA, Ethiopia would unlock access to this vast market, enabling it to diversify its export base and reduce dependence on traditional trade partners like the European Union and the United States. The burgeoning demand within COMESA member states for consumer goods, industrial products, and services provides an excellent opportunity for Ethiopian industries to expand and thrive.
Fostering regional value chains and economic growth
By participating in the FTA, Ethiopia can contribute to and benefit from the development of regional value chains. Given Ethiopia’s comparative advantage in labor-intensive manufacturing and agriculture, it can integrate its production processes with those of other COMESA members, fostering mutual economic growth. For instance, Ethiopian leather products could be further processed within COMESA countries before being exported to global markets, creating a win-win for regional economic cooperation
Encouraging private sector growth and job creation
As Ethiopia continues to open up its economy, joining the COMESA FTA would significantly boost the private sector by encouraging exports and regional business partnerships. The textile and apparel sector alone has created over 100,000 jobs in recent years, and duty-free access to COMESA markets would lead to further expansion and job creation (EIC, 2020). This is in line with the Ethiopian government’s broader goals of enhancing industrialization, creating employment opportunities, and promoting sustainable economic growth.
To sum up, the time has come for Ethiopia to integrate fully into the COMESA Free Trade Area. The country’s economic transformation, the liberalization of its financial sector, and its alignment with broader regional and continental trade initiatives make participation in the FTA advantageous and necessary. By joining the COMESA FTA, Ethiopia would reduce export costs, gain access to a vast regional market, foster economic growth and diversification, and contribute to achieving continental trade and development goals under AfCFTA, IGAD, and Agenda 2063. The potential benefits for Ethiopia’s industries, private sector, and broader economy far outweigh the challenges, making it imperative for the country to embrace regional economic integration through the COMESA FTA.
Amb, Markos Tekle (Ph.D.) is former state minister of foreign affairs. Markos served previously as Ethiopian ambassador to various countries.
He is a trainer and foreign policy researcher. He can be reached at markostekle@gmail.com
BY AMB. MARKOS TEKLE (Ph.D.)
THE ETHIOPIAN HERALD THURSDAY 17 OCTOBER 2024
