Ethiopia's manufacturing sector remains in a tangled web of macroeconomic pressures, security challenges and exogenous shocks. The trifecta highlighted through the latest study by the United Nations Development Program (UNDP) reveals that 450 factories have ceased production in the last year. As a result, the share of the manufacturing sector in GDP saw a 1.5pc decline.

Poor policy frameworks, tedious bureaucracy, underfinancing, unskilled labour force and shaky macroeconomic grounds have plagued the nascent sector, largely limited to light industries which contribute 4.2pc of GDP.

Aiming to jumpstart the sector’s capacity, a 70-page working paper was unveiled at the Hyatt Regency Hotel last week. With the moniker "Can Ethiopia Become a Manufacturing Powerhouse", it crosscuts through the dynamic interplay of challenges and opportunities the country is confronted with in the world economy, which is recovering from a series of shocks.

After outlining challenges plagued by the onslaught of war and pandemics, one of the primary contributors Ali Zaffar, an economist at the UNDP pointed to the absence of peace and stability as the biggest deterrent to manufacturing and development success in Ethiopia.

With decades of experience in advising emerging economies, Ali recognises vast potential in Ethiopia to the point of reaching 10 billion dollars worth of export volume by 2030.

But, only if the critical constraints are unwinded.

At the forefront was the logistics policy. Ethiopia spends around 1.5 billion dollars annually, nearly half of its earnings from export of goods on port fees. Despite the global significance of proximity to international maritime trade corridors, the conspicuous absence of diversification and monopolisation of multimodal operations by a single state-owned enterprise was puzzling to the economist.

To further strengthen his argument that Djibouti ports are very expensive, Ali recalled a comical anecdotal experience of Chinese manufacturers who claimed lesser costs in sending goods from Shanghai to California, than through the logistics channels of Ethiopia.

"It's costly, slow and dominated by a state monopoly," he told Fortune.

Drawing international experiences from Vietnam and Bangladesh on private investment and strategic partnerships of Switzerland and Cambodia, a variety of modalities were proposed.

Upscaling infrastructure of existing corridors beginning with Mojo Dry Port was deemed critical. Reflecting on the experiences of Vietnam and Bangladesh, the infusion of private investments into the logistics sector was suggested while a strategy that entails economic agreements with neighbouring countries for access to ports much like Switzerland and Cambodia was indicated as the top priority. Ethiopia has a long way to go before it becomes competitive like Bangladesh. The Asian Tiger exports above 40 billion dollars annually with 83pc textile products. Rival manufacturing behemoth like Vietnam with more than 220 billion dollars worth of annual exports bolstered by a vibrant electronic manufacturing industry.

Ali pointed to profit-sharing arrangements, concessions and special deals as a few of the possibilities Ethiopia can explore in developing a comprehensive port strategy which is economic at the core.

"You can benchmark the competitiveness of ports," he said, pointing to potentials in Kenya and Somalia.

The importance of serious studies to evaluate empirical data on port potential, which could ultimately be the basis for reducing the cost of exports and improving the price competitiveness of goods, was stressed. Cognizant of tight monetary policy to fight inflation and the necessary capital expenditure to augment the capacities of the logistics infrastructure, potentials in foreign direct investment through valuable propositions to investors and concessional loans after Ethiopia resolves its debt problem was suggested.

Loose monetary policy, supply chain bottlenecks and elevated international prices in fertiliser and fuel are painted as the three forces behind galloping inflation rates. Meanwhile, overvaluation of currency subsidises importers who pass on the costs to consumers in the market.

"Overvalued Birr has an inflationary impact," Ali told Fortune.