Ethiopia has this secured 3.029 billion USD from export trade this fiscal year. According to State Minister of Trade and Industry Misganu Arega, earlier in the year, it was planned to collect 3.77 billion USD and the actual figure indicates a 13 per cent increase over the achievement during fiscal year 2019. The State Minister said that 77 per cent of the result is scored by the agricultural sector while the rest was contributed by the mining and manufacturing sectors.
According to earlier forecasts by many an economic pundits, developing countries like Ethiopia with limited resources and limited capacities might face an economic disaster in the wake of the corona pandemic. This is happening right now to some extent but with some reservations. In the pre-Corona day, Ethiopia’s GDP for the current year and beyond was projected to grow by more than 10 per cent.
Now, this figure is scaled down and the GDP growth forecast for Ethiopia is expected to be 5-6 per cent according to some analysts although the final figure will be released by the IMF and World Bank by September 2020. In the coming two months or so, the GDP growth might experience another fall but overall, the Ethiopian economy is not doing so badly compared to many African countries.
One of the brighter spot in the Ethiopian economy this year is foreign trade about which many pessimistic forecasts were made due to the corona virus pandemic that has devastated global trade. According to official figures, earnings from foreign trade has this year surpassed the average yearly earning of 3 billion USD. This is no small achievement for a country that had not undertaken radical restructuring of the sector. As always, the sector is suffering from structural imbalances and foreign trade deficit, among others. The bulk of export commodities remain the same consisting of the same primary agricultural products.
Prices for agricultural commodities are often erratic as they are largely determined by the global market. This year’s more than 3 billion USD earning from the export trade could be registered in spite of the fact that Ethiopian Airlines which is by far the highest foreign currency earner has been hit by pandemic forcing passengers aircrafts to be ground in the last five months.
The flower export sector, which is also an important foreign currency earner is hard-hit by the pandemic and demands have long plummeted. It is therefore evident that better performance in the farm sector in terms of the amount and quality of products are responsible for this year success in foreign trade, coffee taking the lead and followed by other commodities.
Had it not been for the corona pandemic, the volume of exports and earnings could have been higher and this could in turn help redress the current macroeconomic imbalances whereby the inflation rate has hit double digit and unemployment is at an all time high and the financial sector is facing daunting challenges.
Hence the macroeconomic profile of the country needs real fixing and this can only be done by boosting the export of sector both qualitatively and quantitatively in order to offset losses and increase earnings.
The effects of the corona pandemic on global trade is quite obvious and almost all countries are affected by it, including the rich ones although poorer countries are the hardest hit. The sharp fall in demands from rich countries is also undermining the prospect of dealing with the crisis in poorer ones as their earnings are falling and loans or assistance from the rich economies is either reduced or altogether stopped.
This in turn creates future uncertainties in global trade. Add to this the trade disputes between the big economies like China and the United States that do not help improve the general climate in global trade exchanges. According to some analysts, the current economic recession in rich countries is now worse than even the 2008 Great Recession in Europe and America. The consequences on poorer economies are not yet properly assessed.
As briefly outlined above, the general profile of Ethiopian foreign trade is characterized by balance of trade deficits, the export of a few agricultural and lack of export diversification among others. Ethiopia imports more goods than it exports and the value of capital goods tend to rise sharply relative to the prices of export products; hereby further widening the gap between imports and exports.
As the private sector is still weak, its export capacity is not yet fully utilized while imports are constrained by serious hard currency shortages that undermine their operations. Had it not been for the quick action taken by the Central Bank to make fiscal reforms in order to help small private sector businesses in the context of the pandemic, many of them could have gone out of business, further exacerbating the weaknesses of the export sector.
The few private exporters that are successfully trying to safely sail in the troubled waters of international trade at this juncture therefore need appreciation and encouragement together with the banks that are committed to help them survive the corona-induced economic shocks.
It is therefore against this background of global crisis and domestic difficulties that Ethiopia’s export performance should be evaluated. The balance sheet is far from being hopeless and holds promises for the coming years until the corona pandemic is over and it will be once again business as usual.
The fact that earnings from exports have this year registered results slightly better than the previous years, clearly shows that the economy in general and the sector in particular is not yet seriously ill. It may even show that it is in good health for now although it is difficult to forecast about the future. It is to be recalled that opinions differed as to the performance of the export sector until very recently. It was also feared that the trade performance could even be lower than last year’s. The official figure released by the government recently may therefore come as a surprise to many pessimists although these figures may not be independently confirmed.
This year’s encouraging result in the export sector cannot be taken for granted as the sector continues to face domestic and global challenges and the full impacts of the pandemic are not yet known or not predictable at this stage. There are also non-economic factors that may undermine growth in the sector.
The sporadic conflicts and the absence of peace in some parts of the country may also affect future performance as it has serious costs in terms of the production, transportation and distribution of goods and on the normal productive lives of millions of farmers and agribusiness operators and on the volume of export trade among other things. On the contrary, political stability would help boost the sector’s performance.
As it was recently disclosed by the authorities, contraband trade continues to be a serious challenge for Ethiopia’s trade performance. Although contraband trade was and still is an illegal and criminal activity, it has increased through the years and continues to wreck havoc on the country’s trade and earnings. Contraband trade costs the country hundreds of millions of dollars every year while radical measures are not yet taken to curb it.
As most of the contraband activities take place in secret, it has been proved unrealistic to expect radical change by restructuring the institutions dealing with the problem or by hiring or firing employees allegedly engaged in criminal activities in tandem with powerful contrabandists often disguised as legitimate businesspeople.
However, as far as Ethiopia’s annual trade performance is concerned, contraband trade is causing serious losses to the economy as many products are being exported through illegal channels without generating any income to the country. Contrabandists are illegal traders who are exporting or importing goods without paying taxes to the tax authorities and therefore are amassing huge profits at the expense of the producers of those goods and depriving the government of potential incomes.
The positive export performance the country for this year was achieved in spite of contraband trade activities targeting some of the agricultural products that enjoy high demand in other countries. In the past, there have been many strategies and policies tried to curb contraband trade in these products. Efforts have also been made to discourage contrabandists and bring them back to the sphere of legal or legitimate trading practices.
Stiff measures are also taken against contrabandists to discourage them from pursuing illegal practices that are punishable by law. Yet, this malpractice continues to deprive the country of its precious incomes every year while contrabandists are thriving through these illegal and criminal trading networks, thereby putting legal and tax paying traders at a disadvantage.
As the country’s borders are very porous and border control not as serious as it should be, contraband trade continues to pose serious challenges on the export performance of the country. The efforts to curb this illegal trade is still continuing and one of the strategy is to make all export items processed through the country’s modern marketing system known as ECX that is helping trade exchanges through a system of open marketing by auction.
The authorities have issued a directive or a warning to the effect that some of the agricultural products that are enjoying high foreign demands and are hoarded by some traders should be brought to the market and cleared until the coming September. These products will henceforth be traded through ECX which has already brought more than 20 such products to its marketing platforms.
This is expected to be an effective way, among others, not only to curb contraband trade but also stem the losses in revenue resulting from it. With improved global trading environment and the removal of the threat of the corona pandemic and the removal of some of the major hurdles, Ethiopia’s foreign trade is expected to score even better results in the coming few years.
The Ethiopian Herald August 2/2020
BY MULUGETA GUDETA
