The Ethiopian Herald
25 July 2018
The export sector remains a major pillar in the Ethiopian government’s vision of entering middle income status. The national plan, GTP II envisions increasing the share of export to GDP to 11.8 percent by 2020 from the baseline 6.4 percent.
However, despite the priority given to the sector, and the fact that the country’s export capacity has increased significantly, the performance of the export sector in recent years has been underwhelming.
So, what steps should Ethiopia have to take the export performance to the desired level?
According to Muhdin Muhammed hussen, Economics Assistant Professor at Kotebe Metropolitan University, one of the remedies is easing the business and political environment. Evidences show that the cost of doing business in Ethiopia is among the highest in the world due to issues such as bureaucracy and red tape, uncompetitive environment, low support to private sectors among others, he said, before adding on the need of working to ease the business environment.
“Good governance and quality institutions ease the business environment and encourage domestic and foreign investors to spend their capitals on export-oriented investments.”
To this end, he suggests for the government to exert its effort in reforming procedures on investment, business license, tax collection and lengthy bureaucratic process. “Besides this, fair mechanisms of motivating private sector should be designed.”
As it is known, Ethiopia’s export is agriculture dependent, and agriculture commodities are vulnerable to price volatility at international market. Thus, for far reaching and sustainable economic growth, obviously, the government need to focus on export diversification and value addition, Muhdin adds.
According to him, the country can go about it either by adding new products on the existing export basket, in what is called horizontal diversification, or by processing the products and thereby adding value to them. This, as to him, will enhance Ethiopia’s competitive capacity at international level, and help reduce the country’s vulnerability to price instability. “It also helps increase the global market opportunities for the country.”
Muhdin also sees regional and global economic integration as an important tool to improve the performance of the export sector.
As it creates a market opportunity for our export products, we need to create economic integration with neighbor countries and the global community, he notes. “Beside this, it creates an opportunity to jointly develop resources (like ports) for mutual benefits.”
Considering this, Muhdin acknowledges the Prime Minister’s move to increase economic ties with neighboring countries since assuming power. “The agreements, with Djibouti, Sudan, Kenya, Saudi Arabia and Eritrea, on one hand, provide an easy route to port, and on the other hand, they contribute for multidimensional economic ties among these countries.”
Indeed, this can help Ethiopia significantly improve trade logistics and trading times, and thereby ameliorate its export competitiveness.
In relation to this, the Assistant Professor also underlines the importance of expanding basic infrastructures. Although basic infrastructure like road and electricity is essential and has increased dramatically in the past few years, it needs to be expanded even more to satisfy investors’ need to produce quality products.
Dr. Yibeltal Assefa, Ministry of Trade Information Center Directorate Director, one of the main things that should be done in order to be competitive in export is to work hugely on value chain.
There are entities that are involved in the chain that do not add any value, but contribute to rise in price in commodities. After all, the most effective way to provide goods to consumers at a reasonable price is by reducing the number of middlemen and shortening the value chain. So, there needs to be more work done in this regard, he adds.
Also, Dr. Yibeltal notes, we need to work on adding quality and increase productivity. As our export goods are agricultural products, by default they are organic and in demand. He says that by adding quality to products, and branding them better, the country would be able to earn premium income from its export goods.
According to World Bank Group’s 2014 report, for instance, Ethiopia does not taking the full advantage of its coffee export, despite being among the top producers and exporters of the item, as it exports unprocessed coffee beans for around two USD per kilo while a kilo of roasted Ethiopian coffee retails for as much as 40 USD per kilo in international markets.
“So, if we work on adding quality value to them, and work on shortening the value chain of our export goods, we can make our export sector more competitive,” Dr. Yibeltal remarks.
The other issue he mentions has to do with the role having a competitive real exchange rate plays in improving the country’s export performance.
As there is shortage of foreign currency in the country, it has led importers, who are often exporters as well, to sell their products at lower price in the international market in search of hard currency to compensate for shortage of hard currency needed to import goods. He adds that selling products with low price can affect the quality of that product, as it affects sales volume and profit.
Former World Bank Country Director, Guangzhe Chen, for his part, suggested various initiatives for Ethiopia to undertake in order to improve its export performance.
One of those initiatives he recommended, among others, is to work on ease of doing business by reducing start-up capital for enterprises, intensifying local competition and reducing market domination by individual companies with the view of improving the business environment.
According to the experts, these direct and indirect measures are expected to give an impetus to improve the competitiveness of the country’s export sector, and maximize its contribution to Ethiopia’s economic growth and vision of entering middle income status.