The role of the manufacturing sector in promoting economic growth is really immense, as it has contributed a lot to production and productivity, import substitution, and export promotion as well. There is a two-way causal relationship between the manufacturing sector and economic growth, indeed! Moreover, the growth of the manufacturing sector leads to economic growth, and this works vice versa, as economic growth leads to the growth of the manufacturing sector.
Taking this fact into account, The Ethiopian Herald conducted an exclusive interview with Worku Bekele, agricultural economist working for an agro-economics firm in Addis Ababa.
He said, “The growth of the manufacturing sector leads to the growth of the services sector. The practical actions show that the growth of the manufacturing sector output achieves its positive impact on economic growth in two ways: a direct impact and an indirect effect on the services sector, which are sources of the output of goods and services of the manufacturing subdivision.”
The augmentation of the manufacturing sector in Ethiopia helps the economic sector grow and the most productive manufacturing industries in the country would potentially contribute to raising the productivity of other sectors in a way that contributes to economic plans and policies. Hence, adopting economic policies that stimulate investment in the manufacturing sector contributes to increasing exports to diversify sources of income to achieve nation’s vision of being prosperous.
Yes, the manufacturing sector has been implementing different modes of innovation in different regional states and has established a model to predict the likelihood that the enterprises that would follow the innovation mode dominated by the government. Governmental regulation of innovation and spurring enterprises to initiate creativity have indeed been important tools for development of the manufacturing sub-sector in Ethiopia, but regional differences in economic development required different coupling strategies of invention, he added.
Driven by the policy of expanding innovations, the government and the manufacturing industries in Ethiopia have regarded the service industry and the manufacturing industry as two economic engines. True, he added, innovation in manufacturing has become the national policy for achieving efficient transformation and upgrading and augmenting many countermeasures so far proposed.
The government recently pointed out that high-quality development of the manufacturing needed to touch continuous innovation, the importance of accelerating innovation in the manufacturing as it is of paramount importance in boosting the economic sector in the country. Innovation is an important aspect for achieving steadily development of manufacturing in the country, he opined.
He further elucidated that the positive role of technological diversification would greatly increase national innovation capability and accelerating innovation since it has long been common in building and leveraging dynamic capabilities in the country. As economic development in Ethiopia has exhibited substantial differences and innovation should be a feasible method for touching efficient transformation and upgrading of national economy, due attention needs to be given to the healthy ties between the manufacturing industry and the agriculture sector.
Regional governments might promote different modes of innovation that were coincided to different stages of national economic development, which might affect innovation decisions made by the manufacturing in various regional states, he added.
True, making promotion of the manufacturing under governmental intervention has targeted at pushing the industrial sector forward via coupling development between the manufacturing and differentiated innovation policy dominated by the government as a prime driver.
“In fact, the well-developed regional states in Ethiopia have shown strong momentum for innovation-driven development; for example, large-scale machine replacement has advanced gradually. For example, the large-scale implementation and development of intelligent manufacturing had already appeared simultaneously in some places with better industrial foundations and better policy support, as they could drive the manufacturing to be upgraded. In addition, entrepreneurship-driven innovation and innovation-nurturing entrepreneurship are lucrative approaches to make a difference, in fact. Here, the role of industrial parks is crucial, though a lot remains to be done,” he underscored.
As a result, emerging regions have achieved a great deal of industrial transfer from the already advanced regional states, which could be regarded as the hinterland of the former, he added.
Since competitiveness of the manufacturing sector in Ethiopia has shown sluggish pace, which has led to comparatively lower profits, the government has to be duty bound to push the sector forward. This has required the government to implement lucrative fiscal policy for supporting innovation development, because the manufacturing profit has been insufficient to undertake incremental innovation so far though promising activities are being undertaken. From the viewpoint of the production trajectory, he said the predominantly involved bodies in the manufacturing or the strategic emerging industry; they have to pay more attention to the manufacturing sector.
Innovation could be considered as an important factor influencing the output of the manufacturing enterprise of course; therefore, the county might use production function to detect its impact, and the impact of innovation on the manufacturing could be indicated by technology spillover effect.
It is prettily assumed that the local government and the manufacturing enterprises undertook the same treatment, which implied that the manufacturing enterprise would fully follow the innovation mode encouraged by the government; otherwise, it would completely refuse to innovate. In addition, the nation would assume that the probability of promoting an innovation strategy made by the manufacturing enterprise would be highly profitable.
Furthermore, the government generally demonstrated positive attitude toward innovation, a manufacturing enterprise needs to care about innovation, and chose the profit as its basic criterion for exploring relevant activity is quite vital. As the manufacturing enterprises following the mode of innovation guided by the government, operators need to take great care into account to make real difference regarding the sector, Worku added.
He said the effect of the manufacturing sector on economic growth is obvious. The relationship between industrial production and economic growth has shown progress from time to time, too. The effects of the manufacturing sector on macroeconomic facets, such as gross fixed capital formation, services sector, savings, and economic growth in Ethiopia have had real impact.
Yes, he said policies should be geared towards creating a more conducive environment to attract business, invest in capital formation, and create more jobs for the long-term relationship between the performance of the manufacturing sector and economic growth in the nation has been meaningful.
The effects of manufacturing on productivity levels explain the relationship between industrial growth and GDP growth, given the transfer of labor from low productivity sectors to the industrial sector and the existence of static and dynamic economies of scale in manufacturing in Ethiopia, for instance.
The relationship between the industrial sector growth and economic growth has been very important in pushing the economic growth forward, and gets it rise. As manufacturing is regarded as an engine of development, Ethiopia has to give due emphasis to it and a strong positive correlation between the degree of industrialization and levels of per capita income needs to grow, too; economies of scale and technological progress, and more opportunities for capital accumulation have also to show change.
The manufacturing sector has many characteristics like making it a key determinant of economic growth. It is also the fastest-growing sector, as compared to other economic sectors. Its productivity is higher than the agricultural and service sectors, definitely. The possibility of specialization is greater in the manufacturing sector. Last but not least, given industrial products tradable and access to international markets, the manufacturing sector has better opportunities for increasing demand and attracting foreign currency, as to Worku.
The economic development plans of the nation have focused on the industrial sector to achieve economic and social development by diversifying the production base and eliminating the effects of dependence on oil as the sole source of national income.
The efforts of the state in supporting industrial development included several basic axes, like the provision of the necessary infrastructure, the establishment of the industrial cities, among others. The establishment of industrial parks in various parts of the nation has resulted in the development of the manufacturing sector, and the growth rate of the industrial sector has shown an upward trend so far despite challenges that need to be addressed.
According to him, Ethiopia’s manufacturing sector has faced many challenges, such as a low level of developing the competitiveness of national products, keeping pace with developments in global markets, technology transfer and localization, the industrial environment and sustainable development framework, capacity development of the Ethiopian workforce, development of industrial management, implementation and development of the concept of integration, and increased availability of resources and investments in the industrial sector.
Generally, since the manufacturing sector is the main engine of the economic growth process, the extent of the contribution and importance of the role of the industrial sector in promoting GDP growth should be made high. The industry should also follow a high-road development path based on innovation in products, processes, and business practices, and exploitation of export markets in Ethiopia to make real difference.
BY MENGESHA AMARE
THE ETHIOPIAN HERALD WEDNESDAY 30 OCTOBER 2024
