The Ethiopian Edible Oil Manufacturing Industries Association (EEOMIA) has urged the government to reconsider its recent Value Added Tax (VAT) directive, warning that if changes are not made, inflation could skyrocket.
In its recent directive, the government has warned that not excluding other imported products, including edible oils, from the list of VAT exemptions could subject consumers to unfair price inflation due to unfair competition between tax-paying producers and non-paying traders.
The Ministry of Finance issued its directive 1006/2024 on June 20, 2024, outlining goods exempt from VAT, excluding edible oils, oilseeds, and animal feed that were previously on the VAT exemption list. This decision has created undesirable market competition in the manufacturing industry, putting significant pressure on consumers and potentially driving down prices.
Explaining the rationale behind the directive, the Ministry of Finance stated that it aims to enable low-income sections of society to purchase basic food supplies free of VAT and to ease their financial burden.
The government announced that products produced domestically and imported goods and services provided in the country are exempt from VAT. However, EEOMIA has requested the Ministry of Finance to reconsider its decision to exclude certain products from the VAT exemption list.
In a letter to the Minister of Finance, the association warned that excluding cooking oil, imported crude oil, oilseeds, and animal feed from the VAT exemption list could exacerbate inflation through unfair market competition between VAT-paying producers and non-paying traders. EEOMIA emphasized that its products were previously exempt from VAT and other taxes, allowing its members to compete fairly in the market.
The Minister of Finance, in its mid-June decision, stated that past exemptions under various guidelines were not beneficial to society and eroded government revenue, preventing it from reaping sectoral benefits. Products such as teff, wheat, barley, cereals and legumes, fertilizers, pesticides, and other agricultural inputs, as well as cooked or prepared foods/beverages and capital goods provided under capital lease agreements, are exempt from VAT.
EEOMIA, which currently has 232 small, medium, and large-sized producer members, expressed concern that the directive could lead to price increases and undermine the competitiveness of factories.
Despite a shortage of containers slowing down the process, Ethiopia manages to fill more than half of its containerized export cargo with locally staffed containers.
According to the Ministry of Transport and Logistics (MoTL), over 22,400 TEU export cargos packed locally were sent out in the first nine months of the 2023/24 fiscal year.
Alemu Sime, the Minister of MoTL, reports that localized export cargoes accounted for 58% of all outbound shipments during this time period.
In his most recent report to the parliament, he claimed that the increase in domestically packed cargo had helped save over USD 2.5 million in the previous nine months.
As part of an effort to expedite logistical activities with affordable initiatives, the government has begun to increase the amount of cargo staffed locally rather than at the port site.
Based on this, MoTL anticipated that 83.9 percent of all export cargoes would be filled locally during the specified nine months.
According to Alemu, the actual share reached 58 percent at the end of the nine months.
The Minister informed the legislature a couple of weeks ago that it was 69% of the goal.
He stated that the main reason for not reaching the goal was a shortage of empty containers.
Previously, the majority of Ethiopian export cargoes, which are mostly agricultural commodities, were packed in Djibouti, resulting in foreign currency expenses due to higher charges compared to local expenses.
Currently, Ethiopia has started using alternative ports including the Port of Tadjoura in the northwest of the Gulf of Tadjoura in Djibouti, Berbera in Somaliland, and Kenya’s Mombasa Port, in addition to the port in Djibouti City and its surrounding areas.
“We have imported 312,714 metric tons of coal via Tadjoura in the stated period, which allowed us to save over 53 million birr,” remarked Alemu.
The Minister declared, “We are also using Lamu Port in Kenya in this budget year.”
“The cross-border railway system is playing a significant role in importing cargo, and we will add two more locomotives in the near future to accelerate import cargos through trains,” he added, referring to the limitations on track availability for transporting cargo from Djibouti.
High-level government representatives from Ethiopia and Djibouti have been traveling back and forth between the two countries over the last few weeks
Due to a boundary dispute with its former territory, Eritrea, landlocked Ethiopia moved its international trade from Eritrea to Djibouti in the late 1990s, which led to an expansion of Ethiopia and Djibouti’s relationship.
At the moment, Djibouti and Ethiopia have the most exemplary economic integration on the continent because of their connections to the railway, water, energy, and numerous road networks.
Experts noted that while some topics are rarely brought up between the countries, they sparked attention.
One of these is the recent announcement made by Djibouti Ports Corridor Road (DPCR), a body that was founded under the Djibouti Ports and Free Zones Authority (DPFZA) a few years ago with the goal of modernizing the logistics roads corridor.
According to DPCR, there have been concerns raised by the Ethiopian side regarding the acceptance of Ethiopian currency as legal tender within its (Djibouti) corridor.
The Ethiopian currency has been in use in Djibouti for decades. According to DPCR’s announcement posted on its page on June 11 and later annulled, there have been multiple devaluations of the Ethiopian currency, “and strong indications suggest devaluation is imminent.”
“The Ethiopian currency is not accepted as legal tender within our corridor,” it added.
According to reliable sources who spoke with Capital about the situation said the Ethiopian diplomatic mission in Djibouti, led by Berhanu Tsegaye, asked pertinent Djibouti government officials for clarification.
They advised the diplomatic mission that the announcement was inaccurate and that the head of DPCR had been placed under administrative measures, according to Capital sources.
On June 13, two days after the DPCR announcement, Mahmoud Ali Youssouf, Djibouti’s Minister for Foreign Affairs and International Cooperation, arrived with a message for Prime Minister Abiy Ahmed from President Ismail Omar Guelleh.
“Such exchanges serve as vital channels for dialogue and cooperation, fostering mutual understanding and collaboration on bilateral and regional matters of shared interest,” the Prime Minister noted on his social page after his meeting with the Djiboutian top diplomat.
Mahmoud, one of the senior diplomats in the region, has declared his intention to run for the position of Chairperson of the African Union Commission, which would be chosen early next year.
Likewise, on Monday, June 24, an Ethiopian high-level delegation headed by Minister of Foreign Affairs Taye Atske-Selassie (Amb) went to Djibouti on an official visit. During his three-day visit, Taye informed RTD, the state-owned media of Djibouti, that he discussed a number of bilateral and regionally significant topics with the country’s President and Minister of Foreign Affairs and International Cooperation.
Taye toured a number of port facilities on his first visit to Djibouti after being appointed Minister of Foreign Affairs.
He also met Aboubaker Omar Hadi, the Chairman of DPFZA, an organization that has direct control over the majority of Djibouti’s logistics and associated important economic sectors.
In connection with the 47th Independence Day celebration, a delegation headed by Adem Farah, the Vice President of the ruling Prosperity Party, traveled to Djibouti on Thursday, June 27.
The delegation included Ahmed Shide, the Finance Minister, who has a strong relation with Djiboutian officials, Berhanu Jula (Field Marshal), the Chief of Staff of the Ethiopian National Defense Force, and Shimelis Abdisa, the President of the Oromia region.
The CEO of Ethiopian Shipping and Logistics, Berisso Amallo, reportedly accompanied the delegation on Friday, June 28.
Sources claim that the group held many conversations with Djiboutian authorities while it was there until yesterday.
There are concerns in the economic and national interest between the two countries, according to those who closely monitor their relationship and the logistics industry.
According to insiders, there are some unanticipated problems with customs, payment, and other connected concerns. “The road condition in Djibouti is one of the issues,” they added, referring to Ethiopia and Ethiopian clients, who use Djibouti ports for the majority of their imports.
The other area that the two nations are expected to achieve with new agreements is the non-vessel operating common carriers (NVOCC) agreement, according to sources.
ESL, the only multimodal operator, was the only NVOCC in Djibouti according to the agreement reached in 2006.
However, three Ethiopian companies, notably Cosmos Multimodal Operation, which is partially controlled by Geda Transport, the regional enterprise for Oromia administration, have recently received licenses from Ethiopia to operate as NVOCC multimodal operators.
However, DPFZA disclosed a couple of months ago that NVOCCs, with the exception of ESL, are not allowed to function as multimodal operators in Djibouti.
According to sources, the Djibouti administration has been implementing new processes in recent months, using previous agreements inked between the two countries as support.
Sources stated that Djibouti would be displeased with Ethiopia’s attempt to diversify its port diversifications.
On the other hand, Djibouti’s government has formally revealed that the nation, which has a variety of sophisticated port facilities and is poised to add more, is prepared for completion. Djibouti now runs four ports, one of which is located in Tadjoura.
In addition to the shared electric railway system between the two countries, the two countries are also connected by three road networks. Ethiopia is keen to use the Berbera Port in Somaliland, and it has started importing fertilizers through Lamu, a recently opened port in Kenya. Ethiopian shipments via Mombasa, Kenya, are increasing due to the security situation in the Red Sea.
The biannual bilateral conference, anticipated to be led by senior diplomats from the two countries, is scheduled to take place in Djibouti in July 2024. According to sources, the recent travels between officials of the two countries may also benefit this conference.
Reaching any midpoint, whether it’s to catch one’s breath on a ultra-marathon to gear up for the next stretch, or a project team reflecting on their progress and making necessary modifications – it’s all about positioning for success. So too a mid-year retail check-in offers valuable insights into some of the latest developments shaping how retailers connect with consumers and drive innovation in the second half of this year.
Overview | Global&Local
The rise and rise of ecommerce, the integration of online and offline, platforming sustainability, contactless and convenient quick and easy payment options, price-sensitive pricing strategies and building customer loyalty – dominated the past six months.
So too, and no surprises here, but the broader classification of the consumer is changing yet again. If 2023 was the year of the resilient consumer, it seems that 2024 is seeing the year of the empowered consumer. Mastercard Data&Services [May 2024] reported that despite rising interest rates, inflation and the threat of a recession, consumers still confidently spent in 2023. This year however, consumers are carefully prioritising resources – with many people worldwide now looking for more deals and discounts to carefully balance their household budgets. Technology is also playing a bigger role in bringing innovation and efficiency to retailers and consumers, reflecting a more concerted shift towards a customer-centric and digitally driven retail landscape.
“Don’t blink was my pennies worth at our trends check in November 2023,” said Mike Smollan, Chief Growth Officer, Smollan. “We’ve seen the rapid changes this year, from powerful tactical retail that has global brands amping up the flavour and integration experience for consumers. To local shifts in South Africa for example, with 61% of Gen Zs finding their feet and telling us via a recent Trade Intelligence report, that social media influencers are their best source of information when it comes to shopping. It’s about meeting consumers wherever, whenever, and however they prefer to shop, and being cognisant of and embracing the shift to empowered consumerism.”
Global retail examples always provide a relevant yardstick to illustrate these shifting dynamics on a larger scale. Take Walmart for example who despite relatively little store growth, has maintained its number one ranking with a robust online marketplace and a range of new financial resources for shoppers. Costco expanded its warehouse format this year to a range of countries while Ikea is reinventing, by opening smaller-format stores around the world.
So too, the ecommerce world continues to baffle the brain – with relative newbie Temu topping US$5 billion in sales in 2023, just one year after they launched. With Statista reporting that their app has been downloaded over 52 million times as of May this year.
A wild ride and evolving storyline as we watch the disruption of this sector.
Closer to home, Shoprite South Africa(SA) have adapted in 2024 to serve customers who want more promotions, combo deals and collective buying. They also noted that their customers are switching to private labels. Furthermore, they have expanded their premium stores and on-demand delivery services, as well as venturing into mobile services and financial offerings. On the ecommerce front Tech Safari, reporting on Amazon’s entry into SA in May this year, have suggested a possible pricing war benefitting consumers with faster deliveries, more products and better support. This space in the spotlight from now until year end and beyond, with competition on the up as Takealot, in response to Amazon’s entry, launched a free delivery service with a monthly subscription.
At A Glance | Four Trends
Accelerated ways to enable retailers to anticipate, experiment, adapt and satisfy consumers, even before they are aware of them, will be the golden thread. With Forbes identifying four evolving trends for the second half of the year:
Sustainability
Customers want organisations to step up and show proof of their eco stance however they have “green fatigue” and are quickly on the scent of businesses that are simply ‘greenwashing’.
AI
This is constantly evolving and retailers need to use AI to improve efficiencies and processes, and balance this with a human touch.
Personalised Communication
Consumers want messages tailored to them and their purchasing behaviour and not to be bombarded with general marketing messages. Shifting tactics from purely transactional to empathetic.
Social Commerce
CRM Essentials showed that 37% of consumers trust influencers more than brands. This year social commerce and creator economies present a perfect symbiotic relationship as brands are now more focused on telling stories on social platforms that conclude with a commerce moment.
