Import Substitution Gets Boost from New Directive

An amended directive came into effect earlier this month, which adjusts the tax schedules under which manufacturers import their raw materials and inputs.

It was released on March 10, 2017, and sets out the requirements for certain duty-free privileges that manufacturers receive. The new directive will benefit small and micro enterprises (SMEs) and infant industries, which started production less than three years ago, to import textiles free of duty.

The previous directive, which extended duty-free privileges to all garment manufacturers, was found to be open to abuse in many ways.

“Some manufacturers were importing more materials than they needed for their production and selling it on the side,” explained YitbarekAbebe, marketing director for the Textile Industry Development Institute. “After investigation and discussions with stakeholders, the existing taxation framework was suspended last year.”

After examining stricter regulatory frameworks and how to ensure that value was being added to the products and production process, the revamped directive was released.

It sets out the procedures for small and medium industries, and infant industries, which will be extended the privilege on a case by case basis. The decision will be made by the relevant ministry, including the Ministry of Industry.

“The aim of the new directive is to help incentivise manufacturers to make products up to the standards of those that are imported,” Haji Ibsa, communications director of the Ministry of Finance & Economic Cooperation, told Fortune.

However, the scheme will not be available to all businesses engaged in manufacturing.

“It is only rare cases who will be awarded the privilege,” explained Hajji. “The businesses will be reviewed on the basis of quality and whether the product reaches the standard of those being imported.”

This is part of the support that the government is giving to those engaged in import substitution manufacturing.

On March 4, 2017, Fana Broadcasting Corporate held a consultation forum on the challenges faced by enterprises engaged in import substitution manufacturing.

“The manufacturing sector has been experiencing problems related to the lack of skilled manpower, a lack of proper technology and environmental challenges,” said Dejene Gebremariam, deputy director of the Federal Small & Medium Manufacturing Industry, during a panel discussion of the challenges faced when manufacturing import substitution products.”Encouraging import substitution doesn’t just support local enterprises, but saves the country foreign currency, which would otherwise be spent on imports.”

During the previous fiscal year, the country had poor performance in merchandise exports, which dropped by five percent from the previous fiscal year due to lower international commodity prices of some export items such as coffee, oilseeds, gold, khat and leather & leather products, according to the National Bank of Ethiopia. The country spent 16.7 billion dollars on imports last year, while it made only 2.8 billion dollars from exports.


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