BY MENGESHA AMARE
The tough question ‘why do Ethiopians import foreign made materials when the country can produce them at home employing workers in doing so?’, must be excellently replied to as raw materials from Ethiopia have come back to it converted into finished goods abroad. Why for?
Ethiopia has these days developed firm commitment to produce a number of goods and commodities out of which it can potentially garner immense products thereby augmenting import substitution. The country enjoyed running export-oriented industrial trajectory in some diligences, through assembly operations, based on imported inputs some years ago.
Targeting at seeking viable information about import substitution and the concrete means on how to foster import substitution, The Ethiopian Herald talked to Serkalem Dagnew, an economist graduated from Bahir Dar University and working for a private company as export expert.
She said, “Proponents of import changeover contended that it contributes to industrial development learning by doing, whereas those in favor of free trade and outward orientation claimed that trade contributes to the transfer of knowledge and technology. Hence, attempting to shed well-lit on the comparative experiences in light of the aforesaid philosophies is quite critical.”
As to her, import substitution is the idea that potentially blocks imports of manufactured goods thereby helping an economy by increasing the demand for domestically produced merchandises.
Yes, many developing countries such as ours have adopted import substitution trade strategies after World War II, when economic development was equated with industrialization and capital investment, she underlined.
As to Serkalem, the Ethiopian economy has significant scope for import substitution in the sectors including agricultural products like coffee and commercial crops, apparels and handicrafts, agro-based items, leather and leather products. The country has to concentrate on mass production of commodities in which it has a comparative advantage over other African states. Yes, many domestic markets have production capabilities and a number of sectors are now readily maximizing production and seeking extra investments.
Import substitution and export promotion strategy in the nation would have a positive cascading effect on the economy and equivalent amounts would translate the benefits through forward and backward linkages, she said.
Ethiopia’s response mechanism to revolutionize in global supply chains has changed today by realizing the importance of incentives to be given in domestic manufacturing, and there is a need to move towards sustainable growth, too.
She said, “Since the country is predominantly an agrarian economy, and agriculture is going to be affected by climate change, there is a need to co-opt this natural disorder. Hence, policy making needs to internalize disruptions that are happening in the universe at present. There needs to be focus on new products, new relationships, dynamic trade trajectories, continental amalgamations, new global chains and regulatory environments has to come to the forefront, and need to be nurtured well for real change.”
It is shown today that Ethiopia has managed to develop comparative advantage in many industries initiated through import substitution via gradually increasing value added in export oriented businesses and substituting domestic production for imported inputs in these industries.
According to Serkalem, increasing exports has ranked among the highest priorities of Ethiopian government wishing to stimulate economic growth by eliminating the obstacles to the smooth functioning of market forces and provide information to exporting firms about destination markets and foreign competitors. It is important to make industries accessible to indirect exporters and extending them to imported inputs used in production of exported final products, she opined.
As learnt from Serkalem, increasing the availability of credit is also another important scheme helping exporters have long-term credit, and this is decisive for small and medium enterprises. The government should also simplify regulation related to exports, for instance, the long bureaucratic procedures negatively affect especially new exporters have to be reined at some point. At the same time, she said the government should improve information collection and diffusion about foreign markets and necessities for exporting.
Apart from traditional policy instruments, export growth could be favored by improving cooperation among exporters and between the government and business actors. For instance, the stimulation of export growth also requires the combination of short and long-term policies. In this context, it is important to exploit the complementarity between export promotion schemes and other domestic policies aimed at for instance, enhancing productivity and technological content of domestic products.
Strategic collaboration between different levels of government such as sub-national and national level, and the private sector is widely considered a key element for policy success; she said adding that the four Ps of marketing [product, price, promotion and place] have to be put into effect to make a difference.
“Indeed, a pre-condition for successful export promotion policies is the domestic government ability, including policy design, implementation, and enforcement and monitoring. It follows that the policy mix suggested for the country must be tailored on the basis of capabilities available to the government, regional states and the domestic agencies,” she said.
True, domestic policies may affect export performance either directly, through the set of policy instruments with direct influence on foreign trade, or indirectly, through the set of policy measures that have their direct influence on other aspects of the economic systems, for instance, monetary and fiscal policies, production and price controls, investment policies, exchange rate policies and, in turn, stimulate foreign trade performance, she commended.
Needless to state and as proved effective so far, successful export promotion policies have incorporated clearly defined priorities, goals, and objectives. They are of significantly useful in buttressing development and are almost all the time used to enhance the domestic enabling environment for potential exporters, in terms of infrastructures, regulation, access to finance, insurance, fiscal policies, foster the strategic cooperation between private and public actors and among domestic producers, exporters, and policy makers, improve the productivity and technological content of domestic goods, and provide incentives to nurturing innovation and facilitate the access to credit.
Serkalem further elucidated that in many cases businesses that export their products and services overseas grow faster and do better than those that don’t. In spite of this and the government encouraging more international trade, many businesses still don’t start to export because of developing sense of uncertainty. With a view to improving export sales, Ethiopia’s export strategy should be based on an assessment of its own position and research into promising opportunities.
She said, “Expanding into new markets also involves a great deal of market research in addition to target customers. When going into international markets, businesses need to be aware of the different cultures. A number of factors, among others, demographics, location, common interests or needs of their target customers, market growth rates, predicted demand, competitors and potential barriers to entry have to be well identified before commencing export, indeed!”
She also stated that promoting Ethiopian value added goods and services abroad by broadening the export base, increasing market share in targeted high growth markets and sustaining market share in traditional markets is really becoming the call of the day. This objective is pursued through the review and finalization of the national export strategy based on the critical pillars such as improving the enabling export environment, strengthening the export institutional framework, increasing the demand for Ethiopia’s goods and services through market diversification, broadening the export base and augmenting export incentives and trade financing instruments.
In a nutshell, the government should improve information collection and diffusion about foreign markets and necessities for exporting. Besides, building business relationships with foreign markets is best done face to face, but faxes, telecom conversations and emails should also be widely employed. In so doing, Ethiopia can enjoy substituting import, especially those of it is capable of producing locally.
The Ethiopian Herald March 26/2023
