US UNIVERSITYCOLLEGE

DISTANCE EDUCATION PROGRAM

IDENTIFAY THE PATTERNS OF EXPORT IN ETHIOPIA

RESERCH PAPER SUBMITTED TO PARTIAL FULFILMENTS OF THE

REQUIRMENT FOR BA DEGREE IN ECONOMICS

PREPARED BY: ANGURE AMARE

JUNE 2018

ETHIOPIA
 CHAPTER ONE
INTRODUCTION

1.1. Background of the study

Almost all economies are engaged in the international trade since international trade is essential,
which links the countries of the world through commodities, services flows and factor movements.
(Ayele Kuris, 2003)
The main reason that countries trade with one another rather than to run completely independent
economy is that the earth's resource are not equally distributed across its surface. That means
different countries have different factors endowments, and the international mobility of the factors is
severely limited. Some countries are rich in capital resource, and still others are rich in natural
resource. Because of this every country must trade with others to acquire what is lacks.
(FrancisCheusnilan, 2006

International trade is as an engine of a country's development. The direct benefit of the trade is, when
a country specialties in the production of a few goods. Due to international trade and vision of labor,
it exports those commodities which it produces cheaper in exchange for what others can produce at a
lower cost. It gains from trade and the increase in natural income which, in turn, raises the level of
output and the growth rate of economy. Thus, the higher level of output through trade trends to break
the vicious circle of poverty and promote economic development (D.Salvator,2006).
Ethiopia is atypical least develop countries, that needs a strong export sector which can finance the
growth and development process, especially by making possible import the domestic market.

In the period between 1980\81and 1990\91, the Ethiopia's export product profile clearly indicates that
they comprise predominantly traditional agricultural products the international price of which has
conterminally deters of capital and other goods that cannot be provided by deteriorating (Berhanu and
Befekadu, 2000).

One clear indication for such a trend was that the invariably high share of export in the total value of
exports secondly, only four major export commodities share about 79.42 % of the total exports
earnings per year. These are coffee, oilseeds, pulses and hide and skins. Their share had increased to
86.76 % in 1985\1986, which is the maximum of their share in those years. The minimum of the
share of these commodities was about 61.89% registered in 1990\91 (Ayele kuris, 2003)

From the import side, its import constitutes such essential commodities as capital goods and
consumer goods. These goods have to be imported at world price since they are not sufficiently
available domestically. As a result, the value of imports has been increasing over time. The average
growth of imports was about 3.4% from 1981\82-1991\92 but 8.9% during 1992\93-2000\01.such fast
growth in imports combined with sluggish growth in export resulted in persistent trade deficit.
(Berhanu and Befekadu, 2000)

The country is becoming more and more open economy over time. For instance export plus import to
GDP ratio, which is a measure of openness, has increased over time. Ethiopia has chronically run a
negative balance of payments rendering the country highly dependent up on foreign aid and loans to
Finance imports. Ethiopia major exports include coffee, gold, leather product, vegetable, tea sugar,
cotton and oilseeds. The most Ethiopia export where destined to Germany (10.36%), following by
Saud Arabia(7.76%), America(6.91%), and Japan(6.56%) in 2009/10. Saudi Arabia was the main
importer of live animal as well as meat and meat product.

While Japan is the dominant on import of Ethiopian coffee, China was the importer of oilseeds.
Among the European countries Germany that mainly imported coffee and flower was the largest
buyer of Ethiopian goods. Italy whose the main import consists of leather and leather products was
the second largest market and the Netherlands the biggest destination for Ethiopian flower. Regarding
the origin of imports on average around 13.2% of Ethiopia import originated from Saudi Arabia
followed by China 12.5%, America 8.03% and Italy 5.81%, imports of petroleum accounted more of
the imports from Saudi Arabia.

1.2 Statement of the Problem

The main role played by foreign trade is that it leads to more efficient production of goods and
services, and allows for the technology transfer associated with their exchanges. It also creates access
to goods and services that would otherwise be unobtainable with a county's own resources. Foreign
trade also creates competitive atmosphere domestic industries, and expand market size
(R.J.Carbough, 2008). It is common knowledge that for many years now African countries have been
contending with highly volatile international prices, exchange rates, interest rates and commodity
prices. Among other things, unfavorable movements of thee prices have caused significant looses in
their total export earnings. Moreover, the export earnings of these countries are dependent up on a
narrow range of agricultural commodities. A few production lines dominate export trade and play a
predominant part in the entire economic life of the country. (W.Charles sawyer and Richard
L.Sprinkle, 2003). Among other things unfavorable movements of the price have caused significant
looses in their total export earning.

Moreover, the export earning of these countries are dependent up on a narrow range of agriculture
commodities. A few production lines dominate export trade and play a predominate part in the entire
economic life of the country.The case of Ethiopia is not different from other African countries.
Ethiopia continues to rely on the export of the same commodities that is used to export 50 years ago
and imports those goods and services it was importing half a century ago,testifes to the failure of past
polices to initiate and sustain the development of dynamic comparative advantage over the last fifty
years the Ethiopian economy remained static. The country produces and consumes the same good,
using more or less the same technology.

Ethiopia being dependent on a few agricultural exports has had one of the poorest records in terms of
export performance partly due to the oscillation and the downward tendency international country
faced commodities prices. This is display by the unfavorable terms of trade that the and the
persistent trade deficit. Coffee, which in the past accounted for up to 80 % of total visible export
earnings, exhibits very high volatility of prices in the international market. According to NBE (2003)
in 1998\99, the quantity of chat export was 9.7 million kgs and its unit price was birr 45.9. In
1999\2000, quantity exported was 15.7 million kgs, but the unit price was reduced to 39.5. And also
there are others problems which are obstacles for the Ethiopian foreign trade to unable to play its
major role. Some of them are structural rigidities; the country's import capacity is dependent up on
the export sector performance while the export is highly concentrated on few primary products whose
price fluctuates widely in the international market, market access problems (demand side problems),
strong competition and the like.

Thus, this study tries to answer the following questions.

 The volume and value of export increased or decreased
 Determining the major trading partner nations in the oversees sectors.
 1.3 Objectives of the Study

1.3.1 General Objective

The general objective of this study is to identify the pattern of export in Ethiopia..

1.3.2 The specific objectives are:

 To analyze the structure of export.

 To analyze the value and volume of export.
 To identify the extent and magnitude of export.
 To identify the destination of export.

1.4.Scope of the study

This study tries to analyze the quantity of the pattern export in Ethiopia economy beginning from the
reform period until the currenty.

1.5. Limitation of the study

This study limited by its scope and due to time and cost considerations, the study focuses on specific
issues regarding Ethiopian’s foreign trade.

1.5. Significance of the study

The main importance of the study is analyzing the structure of export. It creates under standing about
the linkage between export and foreign trade. In addition to this the study provides some relevant
information for policy makers and others interested person who wants to prepare a more
comprehensive research in this area or in similar fields of the study.

1.6. Organization of the study

The research paper is containing five chapter. Chapter one provides an introduction to the research
topic including back ground statement of problem, objective and significant of study, scope of study
and limitation. Chapter two provide both theoretical and empirical literature review. Chapter three is
comprises research methodology including type of data source, method of data analysis. Chapter four
provide the presentation of the study result and major findings. Finally chapter five contains the
conclusion and recommendation part.
 1.7 Hypotheses of the study
The hypotheses of the study analysis of the paper is identifying of the structure of the export
commodity, analysis of the growth of the export commodity, analysis of the growth of the export,
identifying of the magnitude and extent of export commodity. It also determine the balance of trade
of Ethiopia and give the recommendations.

CHAPTER- TWO

Literature Review

2.1 Theoretical review

2.1.1 The classical theory of international trade

Trade may be divided in to domestic and international trade. Domestic trade is the exchange of
goods, services and inputs within the territory of the country. International trade is exchange of
goods, services and inputs among different countries. The fundamental principles in both cases are
the same i.e. both domestic and international trades are the result of division of labor (Ayele Kuris,
2003)
The economic philosophy that prevail doing the 17th and 18th century was that of the Mercantilism.
The main feature of the Mercantilist doctrine was that a country could growth rich and prosperous by
acquiring more and more precious metals especially gold and, therefore, all the effort of the state
should be directed to such economic activities that help a country to acquire more and more precious
metals. According to the Mercantilist school of economists, if international trade is not properly
regulated then people might exchange good for commodities of daily use or a luxurious living. This
would lead to the depletion the stock of precious metals whit in the nation. Thus, exports were viewed
favorably so long as the brought in gold but import were looked at with apprehension as depriving the
country of its true source of riches, i.e. precious metals. (Carbaush 2008)

Adam Smith (1723-1790) provided the basic building block for the construction of the classical
theory of international trade. He enunciated the theory in terms of what is called absolute
advantage.Another well known classicalist, David Ricardo (1722-1823) articulated it and expanded it
further into what is called comparative advantage model. The model of Smith and Ricardo together
constitute what is sometimes referred to as the supply version of the classical theory of trade, because
Smith and Ricardo paid almost exclusives attention to consideration of supply production costs in the
determination of terms of trade and the gain from trade. All these contribution of Smith, Ricardo,
Mill, Marsha and Edegeworth put together would constituted the modern version of the classical
theory of comparative advantage, which is oldest and the most famous model of international
trade.((W.CharlesAwyer, 2003)
Most poor counties need to obtain foreign exchange in addition to domestic saving in order to finance
priority development project. Although private foreign investment and foreign aid are a significant,
but declining source of foreign exchange export of primary product typically account for a substantial
fraction of the annual flow of foreign currency in the developing world.(Todoro 2009)

2.1.2 The modern theory of international trade

The two main propositions the modern theory of international trade are: the factor endowment theory
(Heckscher-Ohlin theorem) here after named H-O theorem and the factor- price equalization theorem.
(L.Sprinkle, 2003)
a) The factor endowment theory
H-O theorem states that a country has comparative advantage in the production and exports of that
commodity which uses more intensively the county's relatively abundant factor of production.
According to their theory, the immediate cause of international trade is the difference in the relative
prices of commodities between the countries , and these difference in the commodity prices arises on
account of the differences in the factor supply (endowments) in the two country.( D. Salvatore, 2006)
On the basis of h-o model assumptions, the capital surplus country specialize in the and exports of
capital intensive goods, and the labor surplus country specializes in the productions and export of
labor intensive goods.

According to price criteria a country in which capital is relatively cheep and labor is relatively more
expensive, is regarded as the capital abundant country, regardless of the physical quantities of capital
and labor available in this country compared with the other country. The physical criterion, a country
is relatively capital abundant if and only if it’s endowed with a higher proportion of capital to labor
than the other country.
Generally, the h-o model is based up on some assumptions
 There are only two factors of production –labor and capital
 There are only two countries and they are different in factor abundance
 There are only two commodities. Both goods involve the use of both factors. In other
words one commodity is always capital intensive in both countries and the other commodity is
labor intensive in both countries.

Although the factor proportions term developed by Heckscher and Ohlin provides through and
plausible explanation of international trade as compared with the classical comparative advantage
model, yet it is not free from criticisms. The h-o thermo has been criticized by the factor intensity
reversal argument. Leonteifies and demand reversal argument. (F.Cherunilam,2006)

b.The Factor Price Equalization Theorem

It states that the effect of trade is to equalize factor prices between countries, thus serving as
substitute for international factor mobility.Heckscher (1919) stated that free trade equalizes factor
rewards completely. Ohiln (1933), on the other hand argued that full factor price equalization can not
occur in practice. Ohlin asserted that free trade brings about only a tendency towards factor price
equalization, and, only partial factor price equalization is possible. The latter models by Stolper and
Samuel son (1941) and Uzawa (1959) also support partial equalization thesis. The latter works of
Samuelson ((1948, and 1949 and1953) and of Lerner 1953) make out its for complete factor price
equalization.(M.L.Jhingan,1997)
The model has some assumptions
 A model of two countries
 Both countries produce commodities
 There are two factors of production (capital and labor)

The model states that, when country with low capital ratio and country with high capital labor ratio
start a trade, the result after trade is that capital ratio will rise in country low capital labor ratio and
fall and country of high capital labor ratio until the capital ratios are equalized in the two countries.
This is the process by which the factor prices (capital- labor ratio) in the two countries are equalized
as a result of trade. (R.J.Carbough, 2008)

2.1.3. Structure of Ethiopian Export

As Ethiopia economy is agrarian economy its merchandise(visible) export is dominated by
agriculture products. According to official reports, the most dominate merchandise export items of
the country is coffee.
Despite the persistent decline of the share of coffee in the total merchandise export since1998/99, its
still the major source of visible export earning of the country. Over the 1998/99-2000/02 period the
average annual share of coffee in merchandise export wasto third position. This development
fluctuation may explained in terms of the fluctuation in the price and quantity of the two export
items. According to NBE(2003),in 1998/99, the quality of chat exported was 9.7 million kg and its
unit price was birr45.9 in 1999/00 quality was increased to 15.7million kg. In 2001/02 while quantity
exported of the chat decreased to 11.9 million kg and 4.3 million kg its unit price was increased to
birr 42.8and 45.3 respectively.

2.1.4 Export and Economic Growth

The connection between expansion of and economic growth are not always made clear in economics
literatures. That is two line of argument concerning this connection. The first sense expanding the
export sector can retard economic growth (kildle bender 1968).Thus, it is growth while to see two
arguments. Expanding export sector can stimulate economic development for developing countries
since developing countries relies heavily imported materials to transform its back ground agricultural
and industrials to sector to modern one. There are general models which attempt to explain how
expanding the export sector leads to economic growth of a country depends up on the operation of
saving to total output ration.
The second model of this type is developed given that resources may be under employed or
unemployed. In thiscase, if the exportation the modern efficient sector expanding exports allow more
resources to be down from the under-employed and law productivity sector to occupation where
theyare productive, inthis context there may or may not be improvement in the term of trade. Buteven
the old terms of trade with increased volume the gain have enlarged.The third model of the same
types with the above two models suggest that expanding cost reducing involution. This cost reducing
process of production has contribution to economy.

Douglas stated that timing and pace of an economy’s development has been determined by:-
a) The success of its export sector and
b) The characteristics of the export industry and the disposition of the income received
from theexport sector. He also further said that different countries need large and
growing export sector. This means the expansion of exports play a significant relate to
economic growth, so developingcountries need large and growing export sectors for
achieving economic growth.

2.3 Empirical Literature

The economic growth of any country can be affected by a number of internal and external factors. One of
this factors which affect the country’s economic growth is the performance of its foreign trade. (Mannur,
1997)

Theoretically, with the existence of trade the developing countries can increase the volume of trade or
the real income of the country on account of specialization. The analysis, given first by the classical
economists some the points of stressing the allocation aspects of resources to various line of
production as per the comparative cost of position of different countries. (Agrawal 1993). This theory
states a number of stringent assumptions that a country benefit from exchange and specialization.
In spite of all the direct and indirect benefit of trade in international trade is observed to play
important but not favorable role in the history of several LDCs. These countries primarily produce
agricultural products and export of commodities constitutes their principal source of foreign exchange
and means of financing their economy.
In Africa, there has been over dependent on the export of small number of primarily
agricultural products and the export of these commodities are still concentrated on a few primarily
commodities, which account a significant proportion of export earnings. The share of agriculture on
export to the sub- Saharan Africa countries is exclusively high and does not show any significant
change over the past few decades.
As the supply of most of these commodities (most of which are agricultural commodities) is
dependent on whether conditions, changes in weather condition significantly affect their export
earnings and trade balance in developing countries and there by an important source of
macroeconomic uncertainties.
In the late 1980’s in the sub- Saharan Africa countries, primarily commodities of exports accounted
to over 90% of their total export. And for most LDCs, the export of primarily products constituted for
three quarters of their total export earnings (Todaro, 1994).
For sub- Saharan Africa countries, exports grew now at annual rate of 1.3%, well below the3.2%
growth rate achieved by all developing countries. (UNCTAD, 1992). This clearly designates that
performance of domestic economies of sub- Saharan Africa countries was deteriorating and Ethiopia
is not an exception here.The export concentration in LDCs, especially of primarily agricultural
products causes serious damage to these economies because these products suffer from low income
and price elasticity of demand in the world market. This shows that a given percentage increase in the
national income and market will not enlarge. (Meier, 1995). Moreover, these commodities are subject
to other unfavorable conditions. Primarily agricultural products experience diminishing returns to
scale in the production. Their production offers limited scope for modernization as well as for
expansion of employment and creation of well paid jobs. (Ibid).

Despite the extreme dependence on the export sector, LDCs import machinery, intermediate goods,
consumer products and all capital intensive products from DCs in this action, LDCs are facing
chronic deficits on their balance of payments position.This is because the earning from export sector
can not finance the rising import demands, which imply that these countries susceptible to foreign
debts that devastates their international monetary reserves and economic growth. Moreover, the trade
relationship that persisted between the north and the south further enhanced the decoration in the over
all economic growth, arise in unemployment and the general increases in the incidence of sever
poverty. (Todaro, 1994)
Various possibilities had been discussed on how to improve the trade pattern of the LDCs starting
from 1950’s; the offered by Prebich gained the attention of policy makers in most LDCs. This
enabled LDCs to make some kind of general arrangements among themselves on how to protect their
economy from the northern market. These countries adopted import substitution strategy to stabilize
domestic manufacturing and some formed customs union among themselves to reduce the cost of
infant industries protecting by increasing marketing size.( Harrylyshhysn,1987)

2.3.1. Terms of Trade in LDCs

Kreinin (1998) defined terms of trade as a country’s export price divided by its import (Px/Pm) or the
ratio between the price of unit of exports and the price of a typical unit of imports. Developing
nations are dependence on the exportation or raw material and agricultural products, commonly
reefed to under the heading primary products. Along standing complaint of developing nations is that
their commodities terms of trade, which has been developing or deteriorating over the long run and
unstable export markets.
The prebresch-Singer thesis enunciates that the secular deterioration terms of trade has been an
important factor inhibiting the growth of under developed countries (M, L.Jhingan, 1986).They have
become unstable due to cyclical instability and balance of payment difficulties. During depression,
the terms of trade become adverse and foreign earnings fall steeply.

As a result they suffer from unfavorable balance of payments. But they are unable to take the
advantage of a fall in the price of their products by increasing their export due to the inelastic nature
of supply of their export goods which are mainly agricultural and mineral products.
Moreover, now the gains from international trade are distributed among trading parties has been
controversial, especially among developing nations whose exports are concentrated in the primary
products (R.J.Carbough, 1992).
According to Kreinin (1998), some of the theoretical arguments that threshold to support the claim of
a secular deterioration in TOT of the developing countries is; As the world income grows, the
demand for manufactured goods expands faster than the demand for primary products, so that the
relative price of the latter declines because primary products is marketed competitively

2.4. International Trade and Economic Performance

The center issue is whether there is conflict between market determined comparative advantage
and acceleration of development whether it is presuming the gain from tradeas in the classical trade
theory, a country might its inter temporal attainment of the gain from growth. The significance of
dynamic comparative advantage is emphasized(manure,1998).
The object of economic management in the country is to see to it that the standard of living of the
people improves overtime (carbough,1995), foreign trade is one possible instrument and means to
achieve these objectives. It is through this activity that a country acquires these goods and services
that are essential to accommodate its current needs as well as build up its productive capacities but
are not available from domestic sources.
Among others there goods and services are the broad range of consumer goods and services idea
and knowledge. Skills capital goods and raw materials (Lindert,1986).

Some economist argue that the accurate of the gains from trade is biased in the favor of advanced
industrial countries that foreign trade of inhabited industrial development in the poorer from
classical trade doctrine free trade has in reality accentuated.
In the national equalities (Baldwin). In contrast,others maintained the traditional position that
foreign trade that contribute substantial to the development of the primary exporting countries and
the gain from international specialization merge with gains from growth (edeward) ,one of the other
hand, trade related for economic performance. The classical economists who are also great moral
philosophers is that international inter dependent through in transaction flaw not improves the
welfare of poor countries of the world the strong believed that international trade flows could be
consistence with the economic development of the poor (carbough,1995).
If we only take the rest two recedes average annual growth of term of trade (TOT)forAfrica decline
from 1 percent for the 1990,s. According to the report the term of trade deteriorated for the whole
of the period from 114.1% in 1980 to 85% percent in 1999,as 1990 the base year. The implication of
such interpretation is that the pattern comparative advantage is unfavorable towards Africa and the
developing countries are the view that their so called comparative advantage is not the result of
natural strength but it is ”artificially and deliberately created by then colonial pattern the
production”(Dasgupta,1998).
 CHAPTER THREE

3. METHODOLOGY OF THE STUDY

3.1 Data Sources

To attain the objectives of the study, the research were use data secondary source of data.

Those data were be collected from the quarterly and annual report of the national bank of
Ethiopia. The Ethiopia economic association and other documents was be used in the
research.The period under study from the beginning of the reform period until the current.

3.2 Method of Data Analysis

To analysis the data collected from secondary sources, the research was use descriptive statistics
such as simple graphs, table etc.
 CHATER FOUR

DISCUTION AND ANALYSIS

4.1 Structure of Ethiopian export

Ethiopia, like other developing countries is development on the expert Ethiopia primary products
for large portion or their export earnings. The major exports of Ethiopians are primarily
agricultural products. Manufacture products have little importance or the export earnings at the
country.
Primary products exports have traditionally accounted for suitable proportion of individuals
gross national products. The Ethiopian export of product are coffee, hides and skins, gold,
oilseeds and pulses.
The following table exports of as a percentage of total export items are shown and also the row
data is available in a next part.

Table 4.1 Export of major products as a percentage of total export years.

year coffee Oilseed Hides skins Pulses product Chat Other

56.59 0.13 14.17 0.83 0.08 13.29 14.91

1992/93

1993/94 50.56 3.11 14.34 1.95 0.05 7.6 22.37

1994/95 63.45 1.77 13.17 3.64 0.22 6.08 11.67

1995/96 66.12 1.61 11.88 2.96 0.47 6.89 10

1996/97 59.14 1.9 9.54 2.25 0.62 5.11 21.44

1997/98 69.77 7.59 8.39 2.48 0.71 6.57 4.49

1998/99 58.77 7.46 6.68 2.79 0.86 12.23 11.9

1999/00 53.91 6.45 7.24 2.02 0.8 15.63 13.95

2000/01 39.31 6.97 16.8 1.88 0.37 13.2 21.47

2001/02 36.06 7.21 12.27 7.28 0.24 10.84 26.1

2002/03 34.24 9.55 10.81 4.13 0.50 12.02 28.75

2003/04 37.22 13.77 7.26 3.76 1.28 14.66 22.05

2004/05 39.57 14.75 7.98 4.18 1.72 11.83 19.97

2005/06 35.42 21.13 7.49 3.69 1.85 8.91 21.51

2006/07 35.79 15.81 7.57 5.94 1.29 7.83 25.77

2007/08 35.78 14.92 6.77 9.79 1.42 7.38 23.94

2008/09 25.95 24.59 5.19 6.27 1.84 9.58 26.58

2009/10 26.37 17.89 2.81 6.49 1.69 10.46 34.29

2010/11 30.64 11.89 3.78 5.02 2.30 8.67 37.7

2011/12 26.4 15.00 3.5 5.1 2.5 7.6 39.9

Average 44.02 10.18 8.88 4.26 1.04 9.81 21.99

Source:- computed from NBE statistical tables 2011/12.

From above table we can see that from the period 1992/93 2011/12 on average about 44.02
percent of foreign exchange is derived from coffee export. Also at next data indicate that coffee
is still now becoming more dominant. From the year presented here, the highest shares recorded
in 1997/98, while lowest recorded 2008/09 with the percentage at share of 69.8 and 25.95
percent respectively. We observed from above table that during period of 2000;s until 2011/12
the share at coffee was declining below half of percent. Because the increase contribution of
other product. For example oil seeds.

Next to coffee, the second important export product in terms of value is hides and skins. On
average for the period under study 8.88percent of total export comes from of thus products.
Hides and skins have highest unit value than any of major export product. But its contribution is
much lower than coffee. This is because of the low amount of hides and skins exported each
year. The major cause for this slow down is the variability of world demand. Declining export
unit value of ship skins. The significant ship in demand for goat skins in line with the changing
fashion in the world.
The changing fashion in the in the world market for garment and declining quality of row
materials supplied to the countries leather industry. From the year presented here. However the
highest share was recoded in 2000/01 and the lowest recorded in 2009/10. This is about 16.8 and
2.8 percent respectively.
The third most important product is chat. The average export of chat from 1992/93-2011/12 is
9,81. The contribution of chat for foreign exchange has been increase at a faster rate.
The highest percentage share is recorded in 1999/00. And the lowest contribution was recorded
in 1996/97. This was about 15.63 and 5.11 percent respectively. After 2000 they have no highest
contribution recorded. After these year the highest recorded in 2003/04. This year about 14.66
percent while the lowest in 2007/08 which is 7.3 percent. In the last two years, i.e. in 2011/12 the
contribution recorded 7.6 percent.

The other important commodity next to chat in term of foreign exchange earning is oil seeds.
Which account for percent of total earning at export for the period under consideration. The
highest percentage share was registered in 2008/09. This is 24.59 percent. While the lowest
recorded in 1992/93.which is about 1.6 percent. The oilseed contribution on foreign exchange
after 2000 has been increased at a faster rate rather than other commodity.
The other source of export contributed an average 21.94 percent of export share. The highest
recorded in 2011/12. This is about 39.9 percent. While the lowest recorded in 1997/98. Which is
about 4.49 percent at export share.

As stated above we observed that five commodities namely coffee, hides and skins, oilseeds,
pulses and chat together contribute on average 78.06 percent at export earnings for the period
under consideration and the rest contribute 21.94 percent. Thus these all indicate that Ethiopia
export sector is highly characterized by high level at commodity consideration.

4.2 Value and Volume of Export

4.2.1 Volume of export

Figure 1 volume of export in thousand metric tons
 350

300

250

200
coffee
150
oilseeds
100 hides&skins
pulses
50

Source:-computed from NBE statistical tables 2011/12

As can be seen from the above graph from the period under consideration, the average volume of
coffee export annually was 131 thousand metric tons. The highest volume of coffee was export
on 2010/11. Which amounted 196 thousand metric tons which the smallest volume of coffee was
exported in 1992/93 which was 67 thousand metric tons.

It obvious to mentionthat coffee has beplan the leading role in Ethiopia export trade. With regard
to this the export of coffee is affected by a number of international and external factor. Internal
factors are related to weather condition that affect both the quality and quantity of coffee
capacity to export. While external factor are related to the availability of exporting coffee
international coffee price and still weather condition in the major coffee production countries. As
coffee in the main export item of Ethiopia the fluctuation as volume of coffee export has an
effect on the amount of foreign exchange that the countries get.
This intern has an impact on the growth, and hence development process of the country. Hide
and skins are the most important export product next to coffee. The average volume of hide and
skin annually was 9thousand metric tons. In the period under consideration the height volume of
hide and skin were exported in 2006/7, amounting 15.7 thousand metric tons. While lowest
(smallest) volume was in 2009/10 amounted to2 thousand metric tons. This wide fluctuation in
the export of hides and skills is very low. Ethiopia has a large population of sheep& goats. This
can be good potential for increasing the volume export of these items.
The other two major export commodities oilseed and pulses also showed the remarkable
fluctuation in the period under consideration. The highest volume of oilseeds and pulses was
exported in the year 2011/12 and 2007/08 amounting to 367 thousands metric tons and 233
thousand metric tons respectively. While the lowest volume was in 1992/93 and 1992/93
amounting to 0.392 thousand metric tons and 1 thousand metric tons respectively.
In general the export of Ethiopia had been poor and with regard to periodic fluctuation in volume
terms during the reference period. Such weakness from the supply sides, in coffee was exported
tern. They affected the foreign exchange earning capacity to the country their by making the
growths and development process very difficult.

4.2.2 Value of Export

Figure 2:- value of export by major communities group (in million birr)
 16000

14000

12000

10000

8000 coffee

6000 oilseeds
hides&skins
4000
pulses
2000

Source: Obtained from NBE statically table 011/212

From the above graph it clearly seen that the contribution of the major exportable commodities for
generating foreign exchange of the country fluctuated in the period under consideration.
This is because of the exportable product are highly dominated by agricultural products, which is
low income elastic of demand in the international trade. Coffee on average contributed to nation
economy from trade was started as 3685 million birr from year 1992/93 up to 2011/12. The highest
foreign earing that coffee brought to economy of Ethiopia was registered in 2011/12, which about
14,373million. While lowest in 1992/93 which was 718 million.

Recently, the contribution of oilseed foreign exchange earnings is going to put in the second place
next to coffee. Oilseed on average contributes 1552 million birr in the period under consideration
with the highest was recorded 2011/12 which about 8148 million birr, while lowest recorded in
1992/93 which was 1.2 million birr.

The next to oilseed is also the main average of export earning as the data give shows that on average
in the period between 1992/93 to 2011/12, which about 611 million birr was obtained from hides
and skin. The maximum recorded 2011/12, which as 1896 million birr while the lowest in 1992/93
amounted to 134 million birr.
 Next to hides and skins the foreign exchange earning of Ethiopia by pulse. Pulse on average
contribute in the period consideration is 574 million birr. The highest value recorded in 2011/12,
which is about 2755 million birr, while the lowest foreign recorded in 1992/93 which was 4.1
million birr.

4.3 Export contribution to GDP

Ethiopia like any developing countries the economy is characterized by agrarian economy.
Agricultural contribute most of the share GDP. The foreign trade export earning generated also
depends on agricultural products. However the export earning generated is not enough to pay the
countries import bill. In the following tables, export to GDP and export to import all are at current
market price are shown.
Table 4.2 contribution of export to GDP.
Year Export GDP Export to GDP

1992/93 949 40454.71 2.35

1993/94 1419.5 41787.52 3.39

1994/95 2835.2 49611.68 5.71

1995/96 2607.3 55241 4.72

1996/97 3901.7 57735.86 6.75
1997/98 4141.6 55533.6 7.4
1998/99 3637.3 58788.62 6.19
1999/00 3957.8 66648.33 5.94
2000/01 3866.61 68026.81 5.68
2001/02 3864.32 66556.65 5.81
2002/03 4142.4 73432.22 5.64
2003/04 5176.6 86601.95 5.98
2004/05 7329.8 106474.0 6.88
2005/06 8683.6 131641.45 5.59
2006/07 10422.25 171834 6.06
2007/08 13088.6 245,569.5 5.4
2008/09 15088.12 272,670 5.53
2009/10 25821.7 290,205 8.89
 2010/11 44277.3 310,215 14.27
2011/12 53805.49 185902.5 28.9

Source; computed from NBE statistical tables 2011/12

As can be observed from the above table, the contribution of export to GDP on average is 7.404
percent in the period from 1992/93-2011/12 with the highest value were registered in amounted to
28.9. while the smallest were recorded in 1992/93 amounted to 2.35 percent. The simple analysis on
their performance of export on the bases of export to GDP ratio can be lead to wrong conclusion. For
instance if export remains constant but GDP decreased than there is possibility that the export to GDP
ratio rise and this can be lead in wrong generation.

4.4 Growth rate at Export

Table 4.3 Average growth rate of export (in percent)and this ‘( )’ represent negative result.

Year Coffee Oilseed Hides and Pulses Chat Other Total

skins
219.6 200 129.5 925 62.7 163 198
1992/93
1993/94 33.7 3688.3 51.4 575.6 64.2 19.22 49.6
1994/95 150.5 13.3 83.4 272.9 62.3 (1.46) 99.7
1995/96 (4.1) (16.3) (17.1) (25.3) 1.2 (9.8) (8)
1996/97 33.8 77 20.2 113.8 14.4 256.6 40.6
1997/98 25.2 324.1 (6.6) 17.2 36.5 (73.7) 6.1
1998/99 (26.9) (13.7) (30.1) (1.3) 63.3 126.9 (12.2)
1999/00 1 (5.9) 17.8 (21.3) 39 25.9 58.8
2000/01 (28.7) 5.6 121.2 (9) (17.5) 47.39 (2.3)
2001/02 (8.3) 3.4 (25.1) 281.4 (18) (0.5) (0.06)
2002/03 1.7 4.9 (5.5) (39.2) 18.9 18.08 7.2
2003/04 35.8 80.1 (16.1) 13.7 52.4 (0.27) 25
2004/05 50.5 51.7 (55.6) 57.3 14.2 31.64 41.6
2005/06 6 69.7 11.3 4.9 (10.8) 27.47 18.5
2006/07 21.3 (10.2) 21.2 92.9 5.6 21.76 20
 2007/08 30 22.7 16.2 114.2 22.5 24.79 28
2008/09 (19.2) 83.4 55.2 (27.8) 44.4 116.67 11.3
2009/10 73.9 24.5 (7.3) 77.4 86.8 90.71 71.1
2010/11 99.2 13.9 130.1 32.5 42.2 90.71 71.5
2011/12 10.23 61.1 17.9 28.99 (3) 30.18 22.85
Average 35.26 234.47 25.6 124.2 22.79 50.35 37.36

Source; computed from NEB annual statistical table 2011/12

The value of good and service exported increasing at average annual growth of 37.36 percent for
the period under consideration. During these periods, the revenue accrued from export of coffee,
oilseeds, hides, skins and pulse has been growing at an average rate of export can be viewed to
different policy measure taken by the government. The annual growth rate export of coffee in
1990’s was characterized by fluctuation.
One time it grow while in other time it becomes fall. This legally attributable to world price of
coffee, which largely determines the value of Ethiopian coffee after 1992/93 the table show
remarkable results growth at an average annual growth rate at 35.26 percent. This can also
contribute largely to the recent economic performance of the country had achieved.
Hides and skins which is the second next to coffee in terms of revenue generate from export also
should a positive trend from 1992/93 to 2011/12 and its grow by annual growth rate 26.6%.
while the values at pulses and oilseeds show a remarkable result us the last four years.

4.5 Direction of Export

The major rout of Ethiopia external trade to wards Asian countries was being lead by German.
On average 5.9 % of Ethiopian export found their way to Saudi-Arabia from where about 13.2%
of Ethiopia imports originated. Around 10.7% of export are exported to German. Where about
3.86% of Ethiopia imports originated. The leading external route from Africa originated from
Djibouti.
Table 4.4 The destination of Ethiopian export

Count 2000/ 2001 2002 2003/ 200 200 200 200 200 200 201 201 Ave
ry 01 /02 /03 04 4/0 5/0 6/0 7/0 8/0 9/0 0/1 1/1 rage
5 6 7 8 9 10 1 2
Djibo 16.04 7.04 6.99 7.37 3.8 5.7 4.15 3.5 3.0 2.4 2.2 3.1 3.8
 uti 9 3 6 7 8 5 5

Keny 0.41 0.00 3.24 0.05 0.2 0.2 0.31 0.2 0.2 0.2 0.2 0.8 0.5
a 5 4 4 4 1 1 8 2

Germ 10.25 11.3 8.52 11.13 14. 10 11.7 10. 9.1 9.8 11. 10. 10.
any 33 57 6 11 3 6 57 8 75
Italy 8.35 10.1 4.42 5.53 5.2 5.4 6.33 4.6 4.1 2.3 3.8 3.5 5.3
3 8 5 3 8 1 3 1
Nethe 1.25 1.43 3.43 15.51 3.5 3.8 4.76 9.3 8.4 7.9 5.9 7.2 5.4
rland 3 5 1 9 1 6
Japan 9.85 7.62 4.55 10.70 7.5 7.7 6.12 0.5 0.4 1.1 1,1 2.4 5.0
6 9 5 9 4 3 1
Saudi 7.63 5.94 4.4 6.61 4.6 6.1 6.17 8.5 7.7 6.1 5.0 7.8 6.3
Arabi 6 1 2 0 9
a
China 0.85 2.35 0.54 1.77 4.9 13. 5.03 13. 12. 10. 9.0 13. 7.3
5 43 93 58 86 3 53 7
USA 3.22 4.3 8.21 5.18 5.3 4.8 4.99 4.5 4.1 3.8 4.3 7.9 5.0
1 1 6 2 6 6 7

Source:-computed from NBE statistical tables 2011/12

In addition to those the recent the year direction of trade, specially from the period of 2011/12
show the most Ethiopian export were destined to China (13.13%) following by Germany (10.8)
America (7.9) Saudi Arabia (7.8) and Netherland (7.21). Saudi Arabia is the main importer of
live animals as well as meat and meat product while Japan is the dominant on import of Ethiopia
coffee, China is the importer of oilseeds.
Among the European countries Germany that mainly imported coffee and flower was the largest
buyer of Ethiopian goods. Italy whose main import consists of leather and leather product was
the largest market and the Netherlands the biggest destination for Ethiopian flower.
 4.6Balance Trade

Table 4.5 trade deficit

Year Trade deficit

1993/94 -3320.8
1994/95 -3711.1
1995/96 -4809.6
1996/97 -4609.62
1997/98 -5196.4
1998/99 -8064.8
1999/00 -7480.6
2000/01 -8447.3
2001/02 -10621.0
2002/03 -11878.3
2003/04 -17121.4
2004/05 -24358.3
2005/06 -31186.2
2006/07 -34658.8
2007/08 -49409.9
2008/09 -65426.2
2009/10 -82841.0
2010/11 -90321.01
2011/12 -114356.6
Total -621,098.93

Source :-computed from NBE statistical tables 2011/12

As can be seen from the above table it is clearly such that the trade balance of Ethiopia could not
show a positive throughout the period. Not only had its negative balance trade wonder but its
trade deficit had gone showed an increasing trend in the period under consideration. Trade
balance indicates the difference between export earning the expenditure on imports. Which have
less income elasticity and low demand in international market.
Consequently, the export sector brought less foreign earning the Ethiopia, but the import sector
of Ethiopia is dominated by more of capital goods with highly income elastic and more demand
in the world market. As result, Ethiopian should spend more of its money budget on importing
such capital goods that have great contribution to countries development program in a rapid
move.

The trade balance of Ethiopia total showed (-621098.93) million birr from period 1992/93-
2011/12. The highest trade deficit was registered in 2011/12. Which is about (-114356.6) million
birr while the lowest trade deficit was recorded in 1993/94. Which is about (-3320.8) million birr
in the period under consideration.
CHAPTER FIVE

CONCLUSION AND RECOMMEDTION

5.1 Conclusion

Ethiopian dependent primary products for its export especially an agriculture products. As the
study indicates that the lion share of Ethiopian export comes from agriculture commodities. The
country depends only few agricultural products like coffee which contributes around half of the
total export of Ethiopia in the period under the consideration. Hides and skins is the second
largest contribution as study indicates. This dependency on few products result in up and down
export earning of the country. This is because primary product are characterized by low income
and price elastic demand in the world market. While the contribution of the export to GDP
growth is significant improve overtime. The contribution of export to GDP growth on average
is13.22 percent in the period 1997/98-2011/12. But there is subsequent reduction in the
compensation of export to import. The balance of the trade of the country to be indefinite for
almost every year in the past two decades. This also supplemented by the poor terms of trade.
The country’s external trade is to wards to Asia being followed by the Europe on average 31.4
percent of Ethiopian export found their way to Asia from where about 52.6 percent of Ethiopian
imported originated. Around 39.2 percent of exports are designated to Europe where about 30.2
percent of imports are originated. The remaining percent of external trade is fairly distribution to
Africa and America.

5.2 Recommendation
After investigating all the circumstance the researcher forwarded the following
recommendation.
 It is important to diversity exports both in commodity and destination so as to
reduce country’s export earning instability.
 Export diversification is desirable in Ethiopia. This is because of:-
 Diversification of export sector will reduce negative impact of terms of trade shocks.
 Diversification also increases the amount of domestic resource available in the economy
and exercise the dependence on external resource mainly in the form of aid and debt.
 Vertical diversification would also introduce new and higher value products in country’s
economy.
 Measure should be taken in order to introduce of new but uncomplicated
technologies of production and distribution and management know –how,
particularly in the contemporary competitive world trade is of per-amount
Importance for the promotion of Ethiopian export.
 Marketing knowledge is a pre-request to international trade, so country should
also learn how to search additional market for its export.
 Private sector and government should work together. The private sector should be
strive to invest in the export sector while government has to try to create
conducive macro-economic environment by keeping political stability for
promoting growth.
 There should be shift in export of manufacture goods, which is important to
improvement of the country’s export earning as well as terms of trade. To do so
the government should follow policy which perfect infant industries from
competition by illegal.
References
 AyeleKulis(pr.2003); Ethiopia economy. A.A
 National Bank of Ethiopia (variousyear ), Annual Report (various issue ).
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 Manual Ethiopian Foreign Trade Report, 2007.
 .Ministry of Economy Development and Cooperation (MEDAC), (1999),Survey of Ethiopian
Economy Review of Post-Reform development.
 Knife Abreham (2003);the Dynamics of Ethiopia Economy.
 Savatore .D, (1999); International Economics.
 Walter.Elka, (1973), An introduction to development Economy.
 Manner, HG, (1995), International economics 2nded, U.S.A new Delhi Vikas
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