Last week, while presenting Minister of Trade and Industry’s six month report before the Parliament, Minister Fetlework Gebregziabher stated that Ethiopia has missed its export targets by huge margin.
As per the Minister, country’s export performance was 135 million USD less than what it had been in the previous year, realizing only 62 percent of the intended target. Overall, despite increase in the country’s export capacity, the sector has continued to underperform in recent years. So, what are the reasons behind the underperformance, and what can the country do to deal with it and prop up its export performance?
In an interview he had with The Ethiopian Herald last July, Muhdin Muhammed an Economics Assistant Professor at Kotebe Metropolitan University stated that too much dependence on agricultural commodities and low value addition as one of the main reasons behind the low performance of the export sector.
Ethiopia has not yet fully benefited from its export potential, he said at the time before adding price volatility at global market and inadequate infrastructures as additional culprits for the low performance. Citing Ethiopia’s export portfolio is heavily concentrated on primary commodities; Muhdin also mentioned the re-emergence of drought in the past years as another major factor, showing the volatility of relying on exporting primary products.
And according to Dr. Wondaferahu Mulugeta, Economics Associate Professor at Federal Meles Zenawi Leadership Academy, among other things, some security issues in some rural areas of the country has played a role in weakening the export performance given that the majority of Ethiopia’s export items are agricultural products.
“So, while the industrial parks have become operational, it has not been easy for input supply to reach them.” A combination of factors, besides security issues in the past years, explains Ethiopia’s poor export performance in recent times. Slow industrialization, high cost of doing business due to some infrastructural issues, and a subpar quality of institutions, corruption and shortage of foreign currency reserve are chief among them.
He argues that the short and medium term plans to combat the underperformance should focus on addressing some of the security issues permanently in some part of the country and improve the cost of doing business here. But, more importantly, the country should look into solving the constraint found in the input supply chain in the short term, because the focus should be on the agriculture sector, he opines. “This makes sense because the sector not only supply input to the industry sector, but the country [for the majority] exports agricultural goods.”
While the long term solution is to realize successful industrial transformation, but for the time being the focus should be on the agriculture sector. “We can easily expand modern irrigation system to improve the agriculture sector. If we work on the quality and promotion of our agricultural export, we have at least the potential to stand next to Brazil in this regard.” Furthermore, he points out that the things that are being done currently in terms of improving quality and logistics will have good contribution.
For instance, the 100 days report, if maintained, is a good endeavor that can help in elevating institutional quality. Sequentially, we should focus on the value chain in the short term and work on the agriculture sector, then move on to achieve industrial transformation, and then onto diversifying our export items by including industrial goods, he concludes.
For Dr. Berhanu Denu, Economist and Assistant Professor at Addis Ababa University, the underperformance is down to either the quality of the goods the country export, or the conditions [volatility] in the global market, which the country has no control over.
“The goods we export are for the most part raw materials in their natural state or semi-processed, and for the most part, they do not use sophisticated and modern technologies.” Even when the demand from the international market for Ethiopia’s goods increases, famine or instability can halt economic activities and hinder the country’s ability to satisfy the international demand for its export items, he remarks.
Thus, achieving overall structural transformation, in order to shift the economy from primary commodity export dependency towards progressively more productive sectors, is crucial. Dr. Berhanu suggests bringing in foreign investment, as it is a gateway to technological transfer and experience sharing.
“We should as well further encourage foreign investors to get into the export sector.” Diversifying the country’s export destination is vital in order to bolster its trade (export) performance. Looking at Ethiopia’s export, he said making his point, only 15 percent goes to other African countries, and strengthening interAfrican trade has many advantages if you take into account transport costs, among others.
The other vehicle Ethiopia can look to resolve its export underperformance is the global value chain (GVC), Dr. Berhanu notes. As it is known, GVCs have brought growing exports and a large number of jobs and have been an important driver of economic growth during the past decade. “In order to reap the gains from value chain participation, Ethiopia must know its place within the chain, and put the right kind of policies.”
He mentions the work that is being done by the government to address the issue and prop up the country’s export performance – including the efforts to elevate the quality of products and privatize the logistics sector – as promising. Improving the logistics sector and making it more competitive by privatizing it will yield faster and more flexible service, he says. In parallel to this, the issue of infrastructure, including maritime infrastructure, such as ports are important determinants of export performance.
“There have been good things being done in that regard too.” Finally, Dr. Berhanu earmarks the importance of increasing export earning, especially given that it presents a more reliable and lasting solution to the country’s external debt problem as well.
The Ethiopian Herald, February 6/2019
BY ROBEL YOHANNES
