Ethiopia is one of the most agrarian economies in the world where 85 percent of the population derives its living on subsistence farming practice. The sector utilizes less agricultural input which in turn results in less output. The manufacturing sector plays a pivotal role in creating employment opportunity to thousands of citizens, boosting export, linking with the agriculture sector. Such a positive stride would accelerate import substitution and attract foreign and local investment.
The service sector has on its part created a strong link with the agriculture, fostered the effort towards creating job opportunity to thousands of citizens. The hotel and transportation and tourism are an integral part of the sector. However, the sporadically outbreaking of conflict and war in someparts of the country hampered the smooth running of the sector and resulted in the economic drawback. Looking the macroeconomic aspect, the nation is characterized by a high-foreign debt burden and service, inflation, unemployment, budget deficit, illegal trade and foreign currency crunch.
Addressing a range of questions raised by legislators at the 6th regular meeting of the House of Peoples Representatives 3rd tenure 36th regular meeting yesterday, Prime Minister Abiy Ahmed (PHD) said that the government inherited heavy debt burden from the previous. He also said that the government took various measures including increasing the government revenue through broadening the tax base, modernizing the taxation system through digitizingto recover the debt burden.
“We didn’t receive a single dollar on commercial loan over the last reform years..
Regarding, he said Ethiopia subsititued imports worth 2bln USD on the ending fiscal year. We also received over 23 billion USD from the expoert sector from various sectors. We should be informed that fact that Ethiopia expends in billions to import fuel, fertilizer and to settle debts year in, year out. If we can trim these, the growth would even be doubled and tripled, according to him.
As far as import substitution is concerned, the primary goal of the import substitution scheme is to protect, strengthen, and grow local industries, factories and industrial parks. This is accomplished through a variety of tactics including tariffs, import quotas, and subsidized government loans,” he added.
It reduced borrowing loan from local banks to curb inflation. Nevertheless, the regional government tax collecting capacity is still below the average level. As to him, as compared to the other African countries, the nation’s tax Growth Domestic Production rate is very minimal, which is seven percent.
According to the Prime Minister, due to external shake and domestic inflation, the high cost of living witnessed in the country has been unbearable to the ordinary citizens. However, he said that tapping opportunities from the challenges has been taken as a way out. New economic strides have been witnessed through creating new working culture and the corridor development can also be taken as exemplary.The country has been trekking at the right track in terms of economic, social and even political strides implementing a multitude of lucrative projects and undertakings.
A number of initiatives such as the ‘Made in Ethiopia ,’ ‘Dine for Sheger,’ ‘Dine for the Nation,’ and other related projects have been bearing fruits following the farsighted leadership and the commitment of citizens working in various sectors. The majority of the demand citizens are portraying could be covered following the ‘Made in Ethiopai,’ initiative as it has been recorded remarkable outcomes in clothing, food and medicine. It is really a bold move targeting at reducingtheburden citizens at all levels have shouldered.
The budget allocated to promote the export sector has brought about a tangible result.
According to him, economic policies and programs and such an environment, large sectors are more likely to obtain government assistance. Progress has also been witnessed in various sectors and brought glimpse of hope.
The main income sources of the government are various types of taxes and the public saving. Foreign grant and loan cannot be a permanent source of wealth. In Ethiopia, currently out of 130 million people, only 64 thousand individuals and entities are paying taxes; this implies how the government tax base is very small. Ethiopia’s foreign debt is 17.5 percent of its Growth Domestic Production and to reverse the situation, the government banned borrowing commercial loan from foreign financial institutions and strived to reduce the debt burden to 10 percent of the GDP. The nation’s government budget deficit is reduced to four percent of the GDP and planned to keep it at 2.5 percent of the GDP.
The rampant illegal trade is critically harming the nation economy and agricultural products such as cattle, oil seeds, gold and others find their way to the neighboring countries markets and had they been exported in the formal channel, the nation would have earned huge amount of foreign currency. The other thing which is limiting government capacity is tax evasion particularly on import-export trade and the nation lose sizable amount of money because of tax evasion deliberate hide profit.
Six years ago, nation’s income from export was only 19 billion Dollar and after the coming to power of his government the income rose to 23 billion Dollars. The nation also pulled three billion Dollars from Foreign Direct Investment, which has been recorded as the largest in East Africa. Ethiopia is also able to substitute import worth of two billion Dollars and out of the substitute 40 percent is industrial products. He also said if the volume of locally produced pharmaceuticals and garment increases substituting imported products can be surmounted and demand for imported goods will also reduce.
There are 1.5 million petroleum products consuming cars and most of the cars are privately owned automobiles,and this indicates that most of the imported commodity drained to the private automobiles instead of rendering public services incorporated in the mass transport system. The transport congestion witnessed in the capital day to day particularly during rush hours is attributed to this resource allocation. Hence, to improve the unfair resource utilization taking various measures is essential.
He further said that the government has been taking a number of steps so as to make the economic growth and the financial sector healthy as well as sustainable.
The number of banks is increasing and reached to 37 and they have 12800 branches all over the country. Currently there are 100 million people who opened bank account in various banks. Out of the loaned money only 4 percent of it none performed and as compared to the other African countries, the amount is very small. 8o percent of the deposit money is allocated to the private sector and in the last budget year banks profited 24 percent.
The bank sector will not be closed to foreign banks and sooner the local banks will begin to compete with foreign banks and to that end they have to prepare themselves in terms of technology, human resource and working environment. The Ethio-telecom is partially privatized and the created competitive environment enabled to enhance its service provision capacity and currently it provided mobile banking services to millions of citizens.
Next to import and export, the other indicator that needs to be well eyed at is the finance sector and ensuring its stability matters the most. The Ethiopian macro-economy does have problems as researchers indicate, but the country is working on correcting weaknesses via applying a number of reforms. On the other hand, some others say the country is advancing towards recording exciting economic growth in 2075, forty years from today. To make this vision a reality and lay the foundation for the next generation, our children and grandchildren, we all have to work hard.
BY ABEBE WOLDEGIORGIS
THE ETHIOPIAN HERALD FRIDAY 5 JULY 2024
