By Eyasu Zekarias

Despite Ethiopia’s current low manufacturing state, a new report reveals that the country has considerable potential to become a manufacturing power, with export of 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 percent of domestic demand while the remainder is attributed to imports. Moreover, manufacturing firms are less involved in exports.

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 conducted a 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 percent in 2019 to 4.4 percent 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 Charu Bist, 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 percent 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 percent 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 favoured 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 percent, 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 percent of GDP respectively. The SSA average for 2017-22 was 22 percent. Both are well below the levels of around 30 percent 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.

According to the study, Ethiopia’s economic policy framework still supports importers and traders, and the difference between income and expenditure products was highlighted at 14 billion dollars in 2022 and 13.5 billion dollars in 2023.