
Viewpoints | May 01,2020
March 13 , 2021
By Austine Sequeira ( Austine Sequeira is an independent consultant. He can be reached at austinesequeira@gmail.com. )
Following the adverse global economic recession induced by the COVID-19 pandemic last year, the world is eager to see an economic recovery. The much anticipated V-shaped recovery is highly sought after, but if reports by the World Bank are any suggestion, it will not probably happen this year.
In economic parlance, a V-shaped recovery is the economic growth statistics charted in a “V” shape - signifying the sharp decline of growth and subsequent sharp recovery. The world has witnessed such recoveries in the aftermath of the US economic depression of 1920-21 and 1953.
Is there hope for a V-shaped recovery now?
The world today is building up an arsenal of Covid-19 vaccines. Vaccine inoculation is happening in big economies. These developments, although muted, have brought a ray of hope for a better tomorrow. Three economies have been officially declared to approach the end of the recession by several economic publications: China, India and Bangladesh. It is too early to predict whether these economies are exhibiting V-shaped recoveries. Nevertheless, they have reversed the downturn of 2020 caused by Covid-19 and have started clocking in growth from the first quarter of 2021.
Interesting to note here is that enhanced spending on infrastructure building by the public sector at the cost of public debt and a greater role for the private sector-driven service sector through incentives has been key to revival in normal times. Surprisingly, negating this prophecy, the economies that are exhibiting sharp recoveries, such as China, India and Bangladesh, are currently being supported by the revival of the manufacturing sector.
Globally, Covid-19 restrictions on travel and transportation of goods and services are yet to be withdrawn. Therefore, international trade is taking some more time to resume at pre-Covid-19 levels. This has created great opportunities for local manufacturing sectors to ramp up production and replace imports with homegrown products and serve cross-border opportunities.
How can the most be extracted out of manufacturing?
Although the world is moving toward automation, the manufacturing sector will continue to generate jobs, consume resources and add value. Both the Indian and Chinese economies have shown resilience to downturns with support from the manufacturing sector. Their manufacturing sector has balanced their foreign trade, enabled lower supply-side inflation, and inflated their current account surplus.
Unfortunately, large African economies, including Ethiopia, are yet to address the issue of supply-side inflation by promoting local manufacturing through incentives and tax breaks. Africa generally suffers from low income and saving rates, which adversely hits capital formation and investment. The solution is not higher taxes, export of natural resources and agro-products but production-linked incentives and value-added exports.
We have not seen a single, successful export-oriented unit or special economic zone in the African continent during the past five years. Unlike India, China and other ASEAN States, African leaders do not talk about “self-sufficiency”. This buzzword has the power to build a vibrant small and medium enterprise (SME) sector locally.
A key to the growth of a manufacturing sector, and particularly the SME sector, is a vibrant financial services sector. Large manufacturing projects need voluminous, continuous funding, while the SME sector needs low-cost working capital. The government of the day must play an important role of “an enabler” by controlling interest rates and formulating production-linked incentive schemes so that the banking sector extends soft credit to the industry. Free movement of non-monetary resources is another subject the administrators must tackle to unshackle the manufacturing sector.
There was a time when the SME sector grew on informal financial means and was prone to tax leakages. Financial intermediation, digitation and tax reforms can help reform SME compliance. This sector today can attract large credit inflows from banking sectors and start up investment from prestigious international funds in emerging economies such as China and India.
Let us hope the African economists and leaders alike note the global post-COVID-19 developments and initiate far-reaching changes for sustainable growth.
PUBLISHED ON
Mar 13,2021 [ VOL
21 , NO
1089]
Viewpoints | May 01,2020
Fortune News | Aug 17,2019
Viewpoints | Apr 20,2019
Fortune News | Feb 05,2022
Films Review | Jun 27,2020
Viewpoints | Sep 06,2020
Fortune News | Jul 18,2021
My Opinion | Mar 06,2021
Sunday with Eden | Apr 13,2019
Fortune News | Jul 17,2022
Photo Gallery | 54731 Views | May 06,2019
Fortune News | 47192 Views | Jul 18,2020
Photo Gallery | 46558 Views | Apr 26,2019
Fortune News | 46201 Views | Sep 01,2021
July 2 , 2022 . By RUTH TAYE
On a rainy afternoon last week, a coffee processing facility in the capital's Akaki-Qality District was abuzz with activ...
November 27 , 2021
Against my will, I have witnessed the most terrible defeat of reason and the most sa...
November 13 , 2021
Plans and reality do not always gel. They rarely do in a fast-moving world. Every act...
October 16 , 2021 . By HAWI DADHI
Residing in a country with no capital market, an organised marketplace for trading se...
August 14 , 2022
The call for lofty ideals such as national dialogue and consensus has been as old as...
August 6 , 2022
Few initiatives by the administration of Prime Minister Abiy Ahmed (PhD) have been pu...
July 30 , 2022
Ethiopia’s banking industry is not merely underdeveloped. It has historically regre...
July 23 , 2022
The flip side of a government spending plan is financing. Behind the campaign promise...
August 14 , 2022 . By RAHEL BOGALE
Federal authorities approved submissions by the Addis Abeba University (AAU) administ...
August 13 , 2022 . By BERSABEH GEBRE
The federal government is imposing a new tax, hoping to generate an additional 22 bil...
August 15 , 2022
Agricultural authorities have backpedalled on a decision to raise the minimum price t...
August 13 , 2022 . By ELSHADAY HAGOS
Transport authorities have introduced unique license plates to vehicles owned by indi...
Put your comments here