The Ethiopian development story involves an economic growth that went on for the last decade and half, with industrial activity expanding due to continued investments in infrastructure and manufacturing, new industrial parks and privatization inflows.
Ethiopia is of course aiming to become the next global manufacturing hub, and sustain its economic growth by effectively utilizing the rapidly expanding industrial parks and agro-processing clusters, which the government is fully embarking on.
However, although the industry sector has been expanding consistently, its pace and the structural transformation of the country has been slow. To this end, The Ethiopian Herald has approached some economists to inquire how Ethiopia can speed up its industrial growth and structural transformation. Mentioning that Ethiopia is one of the few countries in the continent with a better, full-fledged industry policy, Dr. Wondaferahu Mulugeta, Economics Associate Professor at Federal Meles Zenawi Leadership Academy, highlights on the importance of providing incentive as the fastest way to intensify industrialization, and thereby structural transformation.
While the industrial policy and incentive package is good, he says, Ethiopia could learn from and contextualize South East Asia countries’ experience in providing incentives to investors wishing to invest in the sector. The industry sector by its nature may take some time to take-off and be profitable; and people with the means tend to invest in the service sector as they want quick return. “So, when we give incentive, there should be preferential treatment; the service sector should not be treated as equal as the industry sector.”
Further, Dr. Wondaferahu says harnessing business/economic corridor with neighboring countries will also boost the industrialization process, by making the price of the industry goods competitive in the international market through reduced logistics and transport costs, which happen to be some of the constraint facing the sector.
If we work hard on the implementation and operationalisation of the proposed business corridors with neighboring countries that are already under work, it will help with zipping up the structural transformation, he opines. “It would be better to work on regional integration with neighboring. and other African countries, and on networking firms, and hastening the operationality of the economic corridor with neighboring countries.” He also points out on the need of easing foreign currency shortage, and curbing the illegal money circulation, which can shot up inflation.
Dr. Wondaferahu says that Ethiopia has high potential and is hugely suitable for agriculture and agro-processing industry, and suggests: “Although we have potential that is yet to be studied; on current state, there is ample comparative advantage to setup small and medium industries that would serve as foundation for future large scale industries.” The country’s industries, including the Industrial parks, should be setup in a way that would utilize its comparative advantage, he argues.
“High potentials like fruits, vegetable, diary products, coffee can be high value-added industries.” Citing the national human development report put out by UNDP last week, Dr. Berhe Mekonnen, an Economist, for his part, states that the country should work on quality of education in order to further elevate the skills of its manpower. He indicates short-term training, internship program or policy directive to produce the manpower needed to support the industry sector.
“Also, I don’t know how much the government incorporated the issue on the newly prepared Ethiopian Education Development Roadmap, but the technical and vocational (TVET) schools should be further strengthened.” He adds: “There was talk of some initiative proposed by Ethiopian Investment Commission which aimed to provide training along with other incentives to local companies that enter into industrial parks. I think that will be useful initiative.”
Despite skill and productivity gaps, one of the major asset and attractive element of investing in Ethiopia’s industry is its manpower, he notes. “It is a huge country with huge manpower resource, with most of it being youth that seeks jobs.” Generally speaking, he says, the labor force alongside the country’s huge market (with growing economy), and the government’s firm commitment to the industrialization of the country is one of the strengths that attract investors to invest in Ethiopia’s manufacturing sector.
Ethiopia is currently undertaking economic reforms, and with regards to what it can do in hastening the pace of the country’s structural transformation, Dr. Berhe sees the logistics sector as playing a positive role. “Although it is early to say, I think the reform the country initiated aims at strengthening the private sector, with the logistics service being one of the sectors targeted to be liberalized/ reformed. And given the sector’s importance to the industry, as it covers the physical movement of raw materials, it will have a positive implication to the industry sector.”
In order to bring structural transformation, the government has undertaken some reforms in the industrial sector as well, says Assefa Tesfaye, Corporate Communications Director at Ethiopia Manufacturing Sector. The Ministry of Industry and Ethiopian Investment Commission has split up responsibilities, where the former focuses on providing support and strengthening local investors (industrialists), while the later is mandated to look after the Industrial Parks and attracting foreign investors into the manufacturing sector.
As the government believes that local investors have huge role to play in bringing structural transformation, it is working decidedly in identifying local investors and in building their capacity through various means, he notes. “We are also doing awareness program to allure investors from other sectors into the manufacturing sector.”
Other initiatives taken by the government include allowing foreign investors to use franco valuta, in order to bypass foreign currency issue, and making sector specific (specialized) capacity building efforts in addition to the general support programs given to all exporters, such as Textile and leather industry development institutes, the Director concludes.
The Ethiopian Herald, December 19/2018
BY ROBEL YOHANNES
