Ethiopia has been aspiring to achieve economic development for long. In order to attain its goal, however, more investment is needed both from local and foreign sources. At the moment, agriculture is the mainstay of the nation’s economy. Besides, the manufacturing sector relies on this sector for its need of inputs. Moreover, apart from being the main source of food items, the agricultural sector earns up to 70 percent of forex.
For the country to transform its agricultural led economy in to the industry led, more capital goods should be imported which in turn need more foreign currency earning. Thus, in order to raise the nation’s foreign currency reserve, implementing import substitution and boosting export must be taken as a way out.
Atlaw Almaw is an economist who works in the higher educational institution as an instructor. As to him, Ethiopia has abundant natural resources but it exports its resources in the raw form or with low value addition which places the nation economically at a disadvantageous position.
Though it is vividly acknowledged that in order to expand the country’s manufacturing and industrialization, importation of more capital goods considered as a key factor, it is beyond its capacity at the moment. Therefore, attracting foreign investors to involve in the economic development with their own Foreign Direct Investment (FDI) is essential. To this end, the government is trying its level best to create enabling environment.
Among others, establishing industrial parks; providing electric power and water with fair price; availability of sewerage system and one snapshot office for providing banking services can be mentioned. The other scheme expected to raise the nation’s currency reserve is import substitution. Importation of agricultural products such as wheat for an agrarian economy is truly embarrassing. Edible oil is also among the imported items while there is abundant oil seeds are produced locally and exported raw.
Fruit and juice also imported while fruit is produced in vast areas. Hence, substituting the imported goods by local products ought to be a matter of urgency. Currently, the government is undertaking different mechanisms to boost wheat production through winter irrigation scheme focusing on the lowland areas where wheat production is not common. This year, for instance, wheat production underway in Oromia, Amhara, Somali and Afar regions is expected to substitute half of the 17 million quintals of imported wheat.
The recent expansion of edible oil factories is expected to substitute the importation of cooking oils. Apart from satisfying the local demand, production of edible oil, if given more emphasis, has the capacity to supply to foreign market which in turn rises the nation’s currency earning. Currently, more soya bean and Nigger are excessively produced locally and exported with no value addition. The expansion of new cocking oil industries creates market opportunities to farmers and creates value chain between farming and manufacturing.
The factories also create job opportunities for thousands. The other agricultural sub sector that can boost the nation’s foreign currency earning capacity is the live stock sub sector. At the moment, live animals are exported to the Middle East market and the demand is growing from time to time. But according to experts, instead of sending live animals, exporting in the form of packed beef is economically more advantageous.
In addition to realizing this need, the establishment of abattoirs in different parts of the country creates job opportunities for thousands and pastorals can get market to sell their animals. In addition, technology transfer is possible. The packed meet also has more value than the living animal. Hence, diversifying the nation’s export items via these and other means would enhance its hard currency reserves.
While the nation is struggling to secure and enhance its hard currency reserve, good news is heard from abroad. In time of adversity, when the world economy is in recession, developing countries become opportunist to raise their international reserve assets. Ethiopia’s gross international reserve, deposited in the form of gold and dollar, is expected to increase by at least 10 percent from a new issuance of International Monetary Fund’s Special Drawing Rights.
First suggested by the Fund in the aftermath of an economic turmoil caused by the Coronavirus pandemic, SDR is a reserve asset exchangeable for Dollars, Euros, pound sterling, Yen, and Yuan. While he made an exclusive interview with The Ethiopian Herald, Solomon Zegeye, an economist and a private consultant said that when countries face shortage of foreign currency based on short term transaction benefit, IMF facilitates countries to obtain loan from their international reserve by special drawings. But the money is not directly provided to the countries. It is used for replacement for what they took from their currency reserve.
When countries volume of import exceeds the volume of export, they obviously face trade deficit which exposes them to the debt burden. Up on the reality of this challenge, countries will withstand the trade deficit through Special Drawing Fund if they have international reserve. Opposing this opportunity, adding insult to injury, the prevalence of COVID-19 critically damages countries’ foreign currency earning capacity.
On the other hand, when countries domestic fiscal system faces turmoil and government’s expenditure exceeds its revenue collection, special drawing rights serves as a tool to take remedial action. As to Solomon, looking the international economic aspect, currently Ethiopia faces mortgage, current account and deficits of overall balance payment.
Factors that contribute a lot for shortage of foreign currency among others are the practice of black market which affects the legal channel of financial flow through banks, paying debt burden in hard currency, the recession of export earnings due to the spread of COVID-19. These all manifested themselves in the internaional trade which forces countries to announce their plights to multinational corporations such as the World Bank and the International Monetary Fund.
Asked whether countries have benefited in such kind of special drawings previously, Solomon said that, the World Bank and IMF in the past, introduced Structural Adjustment Program to restructure their economy by providing special drawing though most countries did not implement it.
Based on the schedule, the multinational corporations financed the countries’ huge projects such as construction of hydropower dams, irrigation and Trans regional asphalt roads. In return, countries reform their fiscal system, taxation rate and privatizing some in efficient public enterprises and broadening the investment landscape to the private sector to play crucial role in the economy.
BY ABEBE WOLDEGIORGIS
The Ethiopian Herald May 8/2021
