The Ethiopian government recently implemented revised import taxes to bolster domestic businesses and decrease reliance on foreign goods. This move is in line with the country's ongoing import substitution policy, which prioritizes local manufacturing. The revised import tax regime targets imported products, especially those for which local alternatives are readily available. These products will now face higher taxes, with a 10pc surge on items like wheat flour and 15pc on office supplies.

The goal is to make domestically produced goods more competitive in the market. Conversely, import taxes on essential materials used for local assembly, such as Completely Knocked Down (CKD) parts, have been reduced to incentivise local manufacturing and assembly.

Commissioner Debele Kabeta from the Ethiopian Customs Commission spearheaded this policy shift, aiming to support the struggling manufacturing sector. Endale Yimer, head of Tariff Classification & Procedure at the Commission, emphasised that the changes were made after careful consideration of their social and economic impacts, hinting at ongoing revisions.

"Tariffs need constant tweaking," he told Fortune.

According to Endale, the revision strategically targets agricultural and manufacturing items. Imposing higher tariffs on imported products for which there are locally producible alternatives is expected to land domestic production in a competitive space.

Eyob Tekalign (PhD), state minister for Finance, led the tariff revisions, aligning them with the overarching import substitution policy 'Ethiopia Tamirt'. The Ministry's Tax Policy Division, headed by Gossa Tefera, emphasised the government's commitment to promoting the manufacturing sector.

"We have revised it," Gossa told Fortune.

In 2021, an updated iteration of the customs tariff book was initiated, encompassing 8,000 tariff line items. The objective was to elevate the competitiveness of domestic producers by imposing augmented duties on analogous locally manufactured goods. The tariff book comprised six duty tax rates, ranging from zero to 35pc, based on the nature of the imported goods.

The changes have been welcomed by various sectors, particularly flour manufacturers who have been lobbying for policy interventions. Muluneh Girma, the general manager of the 28-year-old Ethiopian Millers Association with 142 members, expressed optimism about the potential to increase the competitiveness of local manufacturers.

He said flour producers wrestled with imported products. While local flour price hovers around 8,100 Br a quintal, price differences in upto a thousand with imported alternatives led to the closure of six flour-producing factories exacerbated by a shortage of wheat in the market.

"They couldn't compete," he said.

Similarly, Mizan Flour & Biscuit Factory's General Manager, Hussien Endris, welcomed the tariff amendments, hoping for a more level playing field in the market. He emphasised the detrimental impact of the price difference between local and imported flour on businesses, leading to closures and layoffs.

Hussien revealed that his company had been forced out of business for six months, attributing it to the loss of their competitive edge, ultimately leading to the termination of 15 employees. His company, operating for the past decade on a 2,055Sqm area around Lebu area, boasted a capacity of 400Qtl per day. Despite the setbacks, Hussien expressed unwavering confidence in the tariff amendment's potential to level the playing field for flour factories that had been largely sidelined due to a loss of market share.

"We will soon regain our position in the market," he said.

The Ministry of Industry's proactive efforts to incentivise import substitution in the past year led to an extensive study aimed at evaluating potential policy adjustments to boost local production. Netsanet Abebe, the Ministry's head of chemical products promotion & competitiveness, elucidated that tariff revisions emerged as one of the crucial policy shifts necessary to enhance the competitiveness of local producers, following thorough consideration of various options.

"Manufacturers have been advocating for these amendments," she told Fortune.

She said the critical importance of boosting the capacities of local producers as a cornerstone for realising the import substitution strategy, particularly for a country like Ethiopia facing challenges with insufficient foreign currency reserves. She acknowledges the lingering challenges that require concerted efforts to address, stating: "It's progress."

A study conducted by the United Nations Development Program (UNDP) has revealed that 450 factories ceased production last year, contributing to a 1.5pc decline in manufacturing's share of GDP. Economists concur with these findings, cautioning that while tariff amendments are a step in the right direction, systemic structural impediments in the country need comprehensive reform.