Heavy Fall in Ethiopia’s Light Industry




 

The vision of Ethiopia is to see the country become the manufacturing hub of the continent especially in the manufacturing of textile, leather, agro-processing and other labor intensive industries by 2025.

In order to meet this target, the country plans to heavily invest in industrial park expansion with a planned yearly investment of one billion dollars in the construction of the parks that will house these manufacturing sectors.

Nevertheless, the investment on the industrial parks is made by loading more debt on the country’s already loan weary back. The Chinese government and banks, the World Bank and other international financiers were very keen on the subject and were financing this ambition.

In the past 10 years, foreign investors started to flow to the country with an aim to produce and export products to both African and European markets leveraging the strategic position of the country.

Companies from Turkey were the pioneers in coming to the country following the lobbying of the late Prime Minister Meles Zenawi. Ayka Addis is one of these companies. Saygin Dima, the other. These two relocated their plants from Turkey to Ethiopia.

Chinese and Indian companies started to flood the country to invest in the strategic sectors to make the country the hub for the light industry in the continent. Export oriented direction from the government made these companies obligated to export at least 80pc of their products to the export market.

This resulted in many being anchored to the local market because of vast reasons, from input quality that does not enable the products to be legible to the high end markets to bureaucratic and corrupt processes that hinder the manufacturers from going to the export market.

The government’s inefficiency to regulate the local market is also another factor as the manufacturers always tend to go for the higher price market. Two years ago, some manufactured products yielded a price fold in the local market compared to the export market.

Moreover, the government rigorously started channeling a good slice of the loan cake to these industries. As they are the priority for the government, the manufacturing sector received more loan than any other industry in the country. The industry has also been the backlash for the government as the largest credit default comes from this industry.

The Development Bank of Ethiopia, one of the largest investment lender in the country, out of the 11.8 billion Br loan it advanced last year, the bad loans stand at 50pc. Out of this, 60pc share goes to the manufacturing sector. The same trend holds true for the Commercial Bank of Ethiopia.

Following their defaults, the banks that the manufacturers owe large sums of money to started foreclosing properties. Last year Else Addis was kicked out of the arena by the DBE for defaulting on a 900 million Br loan. Else Addis was repeatedly criticized by the Ministry of Industry for its inclination to the local market. These statements were included in the official sector reports from the Ministry.

Then Saygin Dima followed, the applauded establishment which employed more than a thousand people left the market after being auctioned by CBE.

What is more concerning to the manufacturing industry in the country is that, the export earnings from the sector are showing decline. Last year, a time when the country’s export earnings showed a decades’ low record according to the World Bank’s fifth Ethiopian Economic Update, the contribution of the earnings from the export of manufactured goods contributed only to 176pc of the earnings. The 344 million dollars gained from the manufacturing exports was 11.5pc lower than the prior year.

Despite all the setbacks, the government is hopeful in boosting manufacturing by developing flagship industrial parks all over the country where all of the investors in the shades are expected to export up to 90pc of their manufacturing.

But, at the unseen angles, the government’s intervention in the market and, as many experts agree, logistic problems in the supply chain, will be the bottlenecks for the development of the industry. It is not only once that the manufacturers complained about telecommunication and other necessary infrastructures including the basics of water and electricity.

Unless due attention is given to the sector and flexible marketing strategies are adapted by the government as well as the manufacturers, the ‘hopeful’ sector will have an adverse effect on the economy. The government has to enforce firm measures towards those legally bound to export their products but tactically avoid the hustle and bustle of selling in the international market.

This might bring the light industry hub of the continent to a screeching halt reversing Ethiopia’s rising narrative.

 



By Brook Abdu
Brook Abdu is a self proclaimed lifetime learner and a blogger. He can be reached through his e-mail address jambong52@gmail.com

Published on Feb 07,2017 [ Vol 17 ,No 875]


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