The growth of the manufacturing sector is essential to build national technological capacity, create broad based job opportunity and raise citizen’s income, change the economy from low productivity to the higher one, attract both local and foreign investment, broaden the role of the private sector in the economy, promote import substitution, boost export and create linkage with the agriculture.
In addition to these, the development of manufacturing helps to improve the total factor productivity and competitiveness of the overall economy and can have a trickledown effect on the ordinary citizen by creating strong supply chain. Because of the existence of a number of comparative advantages in the country and to strengthen its competitiveness the Government offered multiple incentives for the growth of the manufacturing sector among others tax holidays, provision of working places in fair price, building industrial parks helpful to accommodate firms, supplying of clean water, banking services and electric power in fair price.
Though the manufacturing sector paves the way for sustainable economic development, its growth is not without challenges.
The major ones include unskilled labor forces with limited experience; limited infrastructure; external pressure from global market, shallow industrial research and development activities, underdeveloped market information system, problems related to trade logistics and limited promotion made on the resources and others.
Manufacturing sector is playing significant role for economic growth in many developing countries worldwide, including Ethiopia. Since the manufacturing sector is very important to the growth of the economy, knowledge of its relationship with the macroeconomic determinant present in its economic environment is crucial.
Currently, due to foreign currency crunch and power interruption significant number of manufacturing produce below their average production capacity.
However, manufacturing share to employment is 5 % and by 2030 the government planned to reach 15% by creating 5 million new job opportunities, according to Ministry of Industry.
The update’s focus on addressing barriers to expanding the manufacturing sector and creating jobs comes amid challenges to diversifying the economy. Several constraints such as limited access to credit and land, and unreliable electricity make it difficult for entrepreneurs in Ethiopia to start new companies.
In an article by Eyasu Zekarias entitled “New report shows how Ethiopia’s manufacturing sector can swing to benefit the economy” explained that, despite Ethiopia’s current low manufacturing state, a new report reveals that the country has considerable potential to become a manufacturing power hub with exporting up to USD 10 billion by 2030 while creating thousands of jobs in the process.
Ethiopia’s manufacturing sector which still remains nascent currently meets only 38 % of domestic demand while the remainder is attributed to imports. Moreover, the role ofmanufacturing in export as compared to agriculture, it is insignificant.
According to the United Nation Development Program (UNDP), there are 18 industrial parks in Ethiopia, 5 privately built and 13 public parks. These industrial parks have attracted more than 60 foreign investors with 740 million dollars of foreign direct investment and have created employment opportunities for 150,000 people.
On December 8, 2023, to give an overview of its report, the UNDP made discussion on the results of the study conducted on the manufacturing sector in Ethiopia with pertinent stakeholders in attendance.
As UNDP revealed in the second annual development conference, “The exports remain anchored on coffee, horticulture, and oilseeds. The introduction of industrial parks in 2015 has been promising but adversely impacted by shocks.”
“The share of manufacturing as a percent of GDP has declined from 5.9 % in 2019 to 4.4 % in 2022, in part due to the combined domestic and exogenous shocks, and, according to the Ministry of Industry 446 firms have been closed in 2022. Moreover, investors have been leaving the industrial parks,” alarmed UNDP.
“The UNDP analysis acknowledges the progress Ethiopia has made over the past two decades. However, our working paper argues that this progress has not yet translated into a meaningful structural transformation in the economy. UNDP also proposes policy options for Ethiopian policymakers to consider,” underscored CharuBist, UNDP Resident Representative at the conference.
As depicted, despite policy interventions, there has been limited product diversification and a lack of export complexity, with 50 % of the total production focused on food products, beverages, non-metallic minerals, and textile or apparel.
The study found that there are more than 20 conglomerates that are family-run sit at the apex of the industrial system and span multiple sectors, with most of them private. The large and medium firms are 75 % value-added but have not had sufficient employment creation in recent years, and there has been limited graduation of small and medium firms to the larger size.
The study reflected that Ethiopia’s economic policy framework still favored importers and traders, with the gap between imports and exports reaching USD 14 billion in 2022 and USD 13.5 billion in 2023. Those engaged in light manufacturing were also noted to serve domestic markets, with little traction made in the creation of exports and quality jobs.
“The government had a tight fiscal position, and defense and debt servicing precluded social spending in the budget. The debt-to- GDP ratio has risen to 52 %, and bank credit is expanding to support the challenge,” explained State Minister, Tarekegn Bululta, Ministry of Industry, at the forum where he discussed and debated manufacturing opportunities and challenges in Ethiopia.
“Security problems in parts of the country affect the macroeconomic balance. The challenge Ethiopia will face in the coming years is to fundamentally change the quality and impact of its development path,” he elaborated.
“While the country’s growth record has been impressive at both the continental and global levels, it has not brought about change – that is, structural change in productivity, output, exports and employment – and has not created enough good jobs to meet demand,” he added.
According to the State Minister, the focus on macro-growth rates obscures significant microeconomic issues that indicate deficiencies in important markets for goods and services, such as agriculture.
“In 2022, the national savings and investment rates were as low as 15 and 25.3 % of GDP respectively. The S&I average for 2017-22 was 22 %. Both are well below the levels of around 30 % of GDP in dynamic Asian economies,” Tarekegn contrasted.
“Industrial development is the center of Ethiopia’s development policy. Both the ten-year development plan and the domestic economic reform agenda have identified the manufacturing sector as one of the main sectors that have been given special attention,” he signified new hope showing government’s shift and priority focus.
As Tarekegn cited, huge investments are being made in industrial parks, integrated industrial clusters, and infrastructure developments in roads, railways and logistics.
Ethiopia is the populous country with more than 120 million next to Nigeria in the continent. It has abundant natural resources including arable lands and diversified agro ecology, surface and underground water with adequate rainfall in the rainy season, mining and forests.
However, due to shortage of technology, finance and well trained man power, the resources are not exploited sufficiently. To tap the resources constructing infrastructure such as roads and rail ways, airports, industrial parks and developing various energy sources are essential because they are key for the development of manufacturing.
In the last two decades and half the government tried its level best to construct and expand energy plants by exploiting sources such as hydro power, wind, solar and geothermal but as compared to the energy demand it needs to do more.
Currently due to various reasons power experiencing power interruption has been common which intern hampered manufacturing not to produce in their full capacity, hence addressing the matter properly is a task that should not left for tomorrow.
The vast arable land can be cultivated for grain production so that it lay ground for the establishment of agro-industries which produce, Macaroni, Pasta, Bread and Cake so that can supply food to the market.
Cultivating barely which can be used as inputs to the emerging bear wary is vital and such scheme in addition to supply the product to the local market it helps to substitute inputs. Ethiopia is reach in live stoke resources but its economic value is below from what is expected. If the sector is fully exploited and modernized creating inputs for leather and leather producing manufacturing is possible in addition creating job for thousands is possible.
Hence through tapping the available resources expanding manufacturing boosting the economy is vital.
BY STAFF REPORTER
THE ETHIOPIAN HERALD TUESDAY 13 FEBRUARY 2024
