Ethiopia’s spending on imports has been growing from time to time. On the contrary, the income from exports has been decreasing over the past several years from around 3.1 billion USD in 2010 to around 2.8 USD billion last year. Compared to the previous year same period, the export income has declined by 10 percent. As a result, Ethiopia has been facing shortage of foreign currency to import manufacturing inputs, machinery and among others.
Samuel Halala, Chemical and Construction Industry Inputs Development Institute Director told The Ethiopian Herald that basically, Ethiopia’s foreign currency shortage is caused due to the huge sums of investment in building several infrastructures, core manufacturing industries, grand hotels, service sectors and other huge projects. All these activities require a huge sum of hard currency.
“As the demand for development grows, the demand for foreign currency also grows. Hence, the country should expand its sources of foreign currency. Besides the agricultural sector, the country’s manufacturing sector should be able to generate hard currency by substituting imports.”
Ethiopia’s foreign currency earning capacity is mainly dependant on agricultural products. Ninety percent of export trade is covered by agricultural commodities. On the other hand, basic manufacturing industry inputs and other products are imported.
Lack of inputs for manufacturing industries, which often couldn’t get the hard currency on time, is also mentioned as a reason for the emerging manufacturing sector to fail in generating export earnings. It needs the introduction of new petro chemical plants to produce basic manufacturing inputs and products.
According to Samuel, the government is exerting utmost effort to achieve this goal in the Third Growth and Transformation Plan. For instance, in Tigray State, petro chemical or PBC plant that can cover sixty percent of the country’s basic petro chemical products’ demand and enable to substitute import and reduce the foreign currency shortage is under construction. The way forward is making basic chemical industries to grow at large.
Manufacturing industries have not been producing with full potential due to foreign currency shortage to import basic industry inputs. They are only utilizing fifty percent of their production capacity. Most of manufacturing industries are producing for consumption or substitution. In other words, fifty percent of their production capacity is undermined as many inputs came from abroad. This has a big impact on manufacturing industries for their success and profitability, he added.
Foreign exchange shortage has highly affected newly established plants to create new jobs due to delay of machinery purchase. The country could not meet export target as most inputs are imported and domestic market demand has become high to produce new substitute products, he pointed out.
Moreover, the fluctuation of power is also becoming a bottleneck for manufacturing industries to produce with full capability. It increased the time it takes to produce the products. To avert the situation, the government is giving due emphasis to mitigate power. As a result, Ethiopia has been facing shortage of foreign currency to import goods especially inputs. Other alternatives such as geothermal energy, solar and other energy mechanisms are also designed as solution, he added.
The Ethiopian Herald June 27, 2019
BY TSEGAYE TILAHUN
