Ethiopia: The manufacturing sector’s constant sting

The history of manufacturing in Ethiopia dates back to the 1920s,but being prone to various challenges means its progress has been muted, says our special contributor Alem C. But now Ethiopia has established a National Manufacturing Competitiveness Council lead by Prime Minister Hailemariam Desalegn and tasked to help jumpstart the nation’s lurching manufacturing sector 

It is a yearly habit for Ethiopia’s Central Statistical Agency (CSA) to show the enduring pain the nation’s manufacturing sector, around since the ‘20s, goes through. Regular surveys by the CSA show almost 50% companies engaged in manufacturing sector in Ethiopia suffer from low productivity – as low as 34% on average – for reasons mostly related to poor quality and insufficient raw materials supply from the domestic market. This in turn has made manufacturing in Ethiopia the most expensive sector of all. During the year 2009/10, leading manufacturing industries in Ethiopia spent approximately $526 million on imported raw materials. The country had paid nearly $2 billion in 2010/11 to import heavy machineries and industrial equipments, according the CSA.  

All the same, in 2009/10, the leather sector in the country had used a mere 10% of its capacity while the performance for the agro-processing industry stood at just 30%. This comes as no surprise when the nation’s chemical industry imports nearly 70% of its raw material, while the figure is a staggering 92% for rubber and plastics, 85% for fabricated metals and 80% for basic iron and steel, among others.

Successive regimes have tried to boost the sector to help it grow to become the engine of the nation’s economy. Alas, none have succeeded so far as the nation continues trailing behind many Sub-Saharan African countries in various global and African competitiveness indexes.

  The (un)attainable GTP? 

Under Ethiopia’s Growth & Transformation Plan (GTP), which is being implemented for the last three years, and is expected to come to an end by the year 2015, the country has envisioned to lay an ambitious solid foundation for its industrial development by boosting manufacturing. But in the last week of Sep. this year, Ahmed Abitew, a newly assigned minister at the ministry of industry, admitted that the performance of the manufacturing sector in the past three years has fallen by almost 50% below the target set under the GTP.

According to Ahmed, during the 2012/13 budget year out of the planned $542 million income from the manufacturing sector only $281 million was secured. The figure for various sub-industries had never met its targets in the past, too. In the year 2011/12, the export sector had fallen behind its targets and earned the nation only $255 million against its target of $471 million, whereas the country earned just $207 million out of the planned $353 million for the year 2010/11, according to the minister, leading the manufacturing sector to falter behind the GTP goals for the last three successive years. The GTP has targeted to double the national GDP from the manufacturing sector from its 10% to 21% and to raise its share of the total economy to 15.6% at the completion of the program by 2015.

A multimodal nightmare

There are a number of reasons why this target will not be met as planned. Ahmed mentioned the most pressing ones including frequent power cut, shortage of finance and supply of raw materials.

But as of late two fundamental blunders have tangled the manufacturing sector in Ethiopia more than any time in the past. The first is the introduction of a Multi-Modal Transportation System (MTS), a crippling logistics arrangement implemented by the Ethiopian Shipping and Logistics Service Enterprise (ESLS) and made compulsory starting from January 2011.

ESLS explains the system as a “means that the carriage of goods by at least two different modes of transport on the basis of a multimodal transport contract from a place in one country at which the goods are taken in charge by the multimodal transport operator to a place designated for delivery situated in a different place.” It claims the system will help it introduce a single administrative document (SAD) system, shortening transit time and saving foreign currency. But in reality, it turned out to be a system whereby private operators were effectively kicked out of business as ESLS took total control of the affair. Businessmen represented by the Addis Ababa Chamber of Commerce and Sectoral Associations (AACCSA) have filed repeated complaints against the decision but to no avail. As a workable solution they requested the liberalization of the system, but unfortunately, that is a request the government wants to make sure will not be answered. Instead a year after MTS was introduced and encountered a total collapse, the government invited international consultants to design methods on how best to regulate it. If there is any result to this end, it is not known, yet.

The second is corruption. On top of a corruption infested Customs Authority, having a crippled MTS system means businessmen have easily resorted into kick-backs to get their businesses going – it is natural that owners of shipments languishing for months both in port Djibouti and in dry ports built near Mojo, some 60km south of Addis Ababa, often opted into whatever means available, nurturing an already sophisticated, if not massive, route to corruption at all levels in the country as the easy (and only) way out.

The government knows these problems and it seems it is trying to tackle it. Its latest attempt was to establish a National Manufacturing Competitiveness Council tasked to look into the problems and find amenable solutions. In the last week of Sept. Prime Minister Hailemariam Desalegn attended the Council’s first meeting and spoke of the need to orchestrate a lasting solution both by the government and the private sector. The Council will be led by the Prime Minister himself and has members from the private sector. For better or worse the Council is expected to help jumpstart the nation’s lurching manufacturing sector. n

 

Caption: The GTP gives a particular emphasis to the pharmaceutical manufacturing sector as one of the promising medium and large scale sub-industries “to create the capacity to produce essential pharmaceutical products that substitute for imported products and also supply export markets.”