An Ungrateful Sector




The Ministry of Trade has made public its third-quarter report on the export earnings of Ethiopia, and it is not good news. For the past two years, the nation has not been able to crack the three billion dollar mark. The government and international institutions such as the International Monetary Fund (IMF) had predicted that the third time will be the charm. With only 2.1 billion dollars bagged thus far, and with just three months to go, that target will likely remain a pipe dream.

This is most unfortunate. The external sector has been akin to an ungrateful child lately. Policymakers have long realised the importance of export to the national income and the absorption of foreign currencies, even if there were somewhat late in realising this. As import costs kept piling up, tethered to the price of infrastructure development, balancing the shortfall with exports has been a priority.

Consider the range of measures that have been applied in the past couple of years. The National Bank of Ethiopia (NBE) risked inflation to devalue the Birr by 15pc against a basket of major currencies, which in large part was undertaken to ensure the price competitiveness of exports in the global market. Exporters were also allowed to retain 30pc of their forex earnings and have been guarded against the 16.5pc credit cap imposed on commercial banks.

A number of industrial parks are also now online, and infrastructure in power and transportation has improved over the last two years. Most importantly, the global market is performing well. China has slowed down a bit but grew by just under seven percent last year. Both the United States and the European countries are likewise experiencing an uptick.

Then, what gives? Why is export performance still in the rut?

The Ministry says this was because of political unrests and illegal trading. These have undoubtedly contributed. Burned factories and properties do not give investors’ confidence to expand or entrepreneurs to join the game. Illegal trading as well presents severe problems with the proceeds feeding a thriving informal market instead of the public’s coffer.

But these are not the only difficulties.

Infrastructure projects have faced multiple delays. A good case would be that of the Grand Ethiopian Renaissance Dam (GERD), which is supposed to satisfy the nation’s demand for power – which would have reduced productivity loss – and improved the national income by exporting electricity to neighbouring countries.

It should also be noted that there has not been delusion from economists in the success industrial parks will bring to the external sector in the short term. The parks are a good indicator that most of the government’s investments are at the very least medium-term goals. They will not deliver soon, perhaps not even by the time when the nation is needed to acquire a low-middle income status in 2025.

While this year’s export performance has marginally improved, lack of diversification still haunts the nation. Over three-quarters of the imports are agricultural commodities. This makes the nation susceptible to the whims of the global market. It also means that weather plays too large a part in determining the national income.

The government has stressed that the manufacturing sector would serve as an antidote to Ethiopia’s economic problems. While there has been a visible structural economic transformation away from agriculture – with the fastest growing industry and service contributing the most to GDP – this has not been visible when it comes to export performance or even employment. Ethiopia is still too dependent on agriculture – a part of the economy that is the least dynamic.

The IMF has suggested that Ethiopia follow a more flexible policy towards foreign currency allocation and an improvement of the doing business environment. Economists add that the nation ramps up its accession into the World Trade Organisation (WTO) to trade less restrictively with member states.

Most of these points are right-minded. They are also not new, with the government having been resistant. The attitude fits in with a recurrent theme where the authorities act once a crisis has already taken place. They have been too reactive, and slow to anticipate shocks to the economy.

It should not be surprising that one of the fewest pieces of advice the Ethiopian government has taken has been to devalue the Birr. There is little sense of policy innovativeness, and a willingness to do away with strategies that have never worked.

The third quarter report should give policymakers the imperative to draw a strategy dedicated to the external sector – one that gives due attention to future setbacks. Reactiveness is ill-equipped to address economic challenges as is evident now. Active policymaking with a broad view of the global market needs to be employed if any long-term growth is to be realised.



By Christian Tesfaye
Christian Tesfaye (christian.tesfaye@addisfortune.net) is Fortune’s Op-Ed Editor whose interests run amok in the directions of both print and audiovisual storytelling.

Published on May 19,2018 [ Vol 19 ,No 942]


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