Nov 11 , 2023

In an industrial manufacturing landscape plagued by shortages of raw materials, foreign currency and skilled labour, an industrial policy entailing increased focus on import substitution has made its way to the Council of Ministers.

Two years in the making, the bill by the Ministry of Industry seeks to enhance the manufacturing sector's role through competitiveness and foreign direct investments by identifying key sectors and creating a sustainable value chain.

The import substitution has reached 38pc while Tarekegn Bululta, state minister for Industry disclosed the plan to substitute imports worth two billion dollars in the year.

Officials expressed their desire to attract investors into the fold by reorganising the policy and directing significant capital allocation.

Tilahun Abay, strategy affairs head at the Ministry, hopes to attain 60pc within a decade with the 'Ethiopia Tamrit' initiative holding significant promise to realise the objectives. He underscored the importance of identifying and addressing critical challenges of the manufacturing sector through an updated policy framework to reach the desired goal.

"It all falls under enhancing capacity," Tilahun told Fortune.

Despite expanding industrial parks over the past decade, Ethiopia's manufacturing sector contributes less than six per cent to the country's GDP. However, the rise in import bills, which had increased by 26.6pc last year paints a contrasting picture.

The annual report by the Central Bank indicates that manufacturing accounted for 13pc of the country's total export revenues out of nearly four billion dollars.

Tilahun insisted that by doubling down on products that require substantial foreign currency, Ethiopia saved up to 2.6 billion dollars in the last fiscal year. He suggested that the country had managed to save 48.8 million dollars in the past three months from the textile industry alone by locally producing military uniforms.

The bill targets facilitating long-term financial loans and insurance policies by forging relationships between financial institutions and factories while emphasising greater automation and research to exhaust the potential of underutilised but available resources.

One such sector is the leather industry, which has lagged despite Ethiopia's large livestock population with 65 million cattle and 45 million sheep. Last year, leather and leather products accounted for only one percent of the 4.1 billion dollars earned in merchandise exports.

Former secretary of the Ethiopian Leather Industry Association, Solomon Getu, points out that the short, positive upswing observed in the industry has been stamped out with foreign currency shortages, limited access to chemicals and the pandemic.

"Lack of policy prioritisation has pushed several factories to close," he told Fortune.

Solomon indicated that 25 tanneries from the 30 that used to be operational in the country have shut down. He insists that the country's overall economy could grow threefold if only an enabling policy environment existed with tax incentives and vibrant export markets.

"A lot of work is required to revitalise the leather industry," he said.

A report by the Global Development Network indicates that lack of external financing remains a critical bottleneck for growth in Sub-Saharan Africa due to high collateral requirements.

Girum Tsegaye, former president of Berhan Bank, recognises that commercial banks only give out short-term loans even though manufacturing requires long-term capital.

"Policy bank should finance the manufacturing sector," he underscored.

He noted that foreign currency shortage is an all-rounded problem not unique to manufacturing and recommends engaging in the export sector to acquire refinancing capacities through foreign exchange.

Manufacturers look forward to any policy shifts that could result in increased forex access or improved access to inputs.

Ibrahim Yusuf, vice president of the 41-member lobby group Ethiopian Plastic & Rubber Association, welcomes the implications of the bill all the while fearing it will be subject to constant shifts like previously introduced bills.

"There is a serious problem of inconsistency," he told Fortune.

Ibrahim indicates that six of the 10 retreading factories had left the industry over the past four years, prompting the Association to draft a letter to the Ministry of Industry asking for tariff and tax deductions.

He is a significant shareholder of Et-Retreading Plc, established 16 years ago with 3.5 million Br capital. The Company has the capacity to re-process 4,500 tires annually for 20 million Br in revenues.

"We are working at a third of our capacity," Ibrahim told Fortune.

Researchers also have identified the challenges of the policy environment in undermining the industrial development of Ethiopia.

Seyoum Chane, policy, research, and advocacy manager at the Addis Chamber of Commerce & Sectoral Association, points to a severe lack of managerial capacity, skilled and cultured human resources and productivity as long-term challenges of the industrial landscape in Ethiopia.

He emphasises the importance of moving from theoretical artifices to practical on-ground work, indicating a policy implementation guide and a separate institution to track its progress will be necessary if it is to have any noticeable effect.

"Policy creation doesn't solve problems," he said, "Implementation does."

PUBLISHED ON Nov 11,2023 [ VOL 24 , NO 1228]

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