In the last two decades and half, the incumbent has taken various measures to stabilize the nation’s macro-economic imbalances. Opening the economic space to the private sector, introducing laws helpful to attract foreign investment, boost export, enhance the nation’s foreign currency garnering capacity, accumulating capital, tackling inflation and others can be mentioned in this regard.
Demis Chanyalw (PhD) is a long serving economist working as a consultant for various firms. While making an interview with local media recently, said that Ethiopia is an agrarian country in which agriculture is the means of living for 85% of the population, contributes 78% of foreign currency earnings, supply inputs to the agro-industries and food to the market.
Yet, the sector is vulnerable to extreme climate conditions and unless the nation brings structural change through shifting agricultural labor to the manufacturing and service sectors, attaining sustainable development is unrealistic.
As to him, cognizant of these since long ago, the government has tried its level best to bring structural change and in this regard it has shown dedication by allocating it’s time and budget for the expansion of manufacturing industry.
As a result, it constructed industrial parks in various parts of the country, supplied electric power and internet services, clean water and rented shades in lower price, provided banking services which simplified doing business there.
Attracted by the created enabling environments, foreign investors from Turkey, India, China and others came here and engaged in textile and garment, pharmaceuticals, beverage and food, floriculture, vegetable and fruits and enabled to create job opportunities to hundreds of thousands.
Most of the industrial parks and the flower farms are located adjacent to the Ethio-Djibouti rail way which reduced transaction cost of exporting products and importing industrial inputs from abroad.
As to Demis, flourishing of the manufacturing industry brought multi-faceted benefit to the country. It attracted both foreign and local investment and broadens the role of the private sector in the economy; created job opportunity to the unemployed; created linkage with the agriculture sector by utilizing raw materials from the sector; encouraged innovation and entrepreneurships, and boosted export and substituted imports.
The economic- development of the Asian Tiger countries such as Korea, Taiwan, Singapore and Hong Kong tells that how the manufacturing played pivotal role in attaining structural change and economic development.
Forty years ago, these countries’ economy was predominantly agrarian but after reforming the economy and attaining structural change, they were changed from net importers of goods in to net exporters. As the result, they could increase their hard currency reserves and earning capacity and become the manufacturing hub of not only the region, but also the world.
Earlier to bringing structural change, they used to export agricultural products to the foreign market without value addition. The unprocessed agricultural products exported to abroad were less competent in the market which put the exporting countries in disadvantageous position.
After achieving structural change, their manufacturing products were produced with less production cost and exported with value addition which enhanced their market competition so that, gain more profit. Because of the expanding of manufacturing, they enabled to shift stranded agricultural labor to the manufacturing sector. The labor force engaged in manufacturing, unlike those engaged in subsistence seasonal farming, produce on daily bases which increases working time and productivity.
Import substitution helped countries to use more local resources as input in the industrial production and create market opportunities to farmers and raises their income which in turn utilize more agricultural inputs that enhances productivity. Currently, the four Asian Tigers are high growth economies. They have been fueled by exports, rapid industrialization and have achieved high level economic growth since 1960s and joined the ranks of the world wealthiest nations. They have shared common characteristics including sharp focus on exports and educated people and increased saving rates.
Recently, the Ministry of Industry announced that Ethiopia’s import substitution strategy has started bearing fruit by substituting goods worth 2.26 billion USD over the last fiscal year alone.
Although Ethiopia is endowed with immense resources vital for the development of manufacturing industries, the country’s production capacity is only 38% of its potential. The remaining 62% is imported with huge amount of foreign currency.
According to the Ministry of Industry, the country has not yet ensured its production sovereignty despite the abundant natural resources and productive labor force vital for the development of industries. Ethiopia imports fertilizer, engineering technology, machineries, and chemicals, among others. Therefore, as to the Ministry, Ethiopia is a consumer nation.
Nevertheless, the Government has been working to reverse this reality with a view to expediting the development of the country by strengthening the manufacturing industry sector. In this regard, enhancing import substitution has been given the utmost priority.
Ethiopia’s import substitution strategy has been bearing fruit and the nation was able to substitute products such as textiles and food stuffs. Some 96 product items are identified, among which some have already been successfully accomplished. For instance, military uniforms that used to be imported are now fully substituted with domestic products.
In addition 100% of beer barley seed demand of the country has also been covered with domestic products. According to the Ministry, the nation has even begun exporting beer barely seeds as the country was able to produce surplus.
In addition, the country has been engaged in domestic production of various foodstuffs for the treatment of Moderate Acute Malnutrition and the results are encouraging.
The production of such item, including beverages, has enabled the nation to save 1.36 billion USD. Recently, the World Food Program purchased food products from Ethiopia, supporting the country to alleviate foreign currency shortages.
Ethiopia has also been encouraged to produce student uniforms and bags as the domestic demand for the products is very huge with a total population of around 30 million students.
The import substitution strategy of Ethiopia also promotes strong consumers that prefer domestic products. The State Minister of industry, Tarekegn Bululta, stressed that import substitution is key to alleviate the shortage of foreign currency. Besides, the strategy encourages local industries to enhance their productive capacity.
According to Demis, Ethiopia is endowed with abundant resources and it is one of the populous countries in Africa next to Nigeria. This indicates that, the nation has huge labor force which can produce more and can be consumer. But both the natural and human resources are not sufficiently utilized and through taping the resource and expanding the manufacturing, increasing production, productivity and export can be possible.
Though the country is agrarian, sadly it imports foods, edible oil and others that can be produced locally and for the importation of such products the nation allocates its meager hard currency that would have been reallocated to the other sector.
Ethiopia produces oil seeds and exports in its raw form. Paradoxically, it imports edible oil from abroad and spends more than two billion Dollars annually. In such situation, attaining sustainable development is impossible, Demis said.
In fact, there are some local companies which are engaged in edible oil production but still, they import inputs vital for the production process.
According to studies, Ethiopia has huge resources of pulp growing in various parts of the country which can be used as inputs for paper production but it is not exploited. Some private companies appealed to engage in pulp and paper production to the pertinent institutions but due to bureaucratic hurdles, they are unable to start production. On the other hand, the nation spends millions of Dollar for the importation of paper.
Currently, due to the rising of paper price in the world market, the allotment of hard currency for the importation is doubling. The printing cost of texts and newspapers is also increasing from time to time. Therefore, substituting paper products should be taken as a way out so that saving the hard currency can be realized.
In addition, the volume of the products does not meet the local demand. Hence, scaling up the production and expanding manufacturing industries is essential.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD TUESDAY 4 JUNE 2024
