Aaccsa Final
Aaccsa Final
Aaccsa Final
Addis Ababa
October 2019
Prelude
This partial report is in response to the consultancy award from Addis Ababa Chamber of
Commerce and Sectoral associations (AACCSA) to Pan African Consulting PLC to undertake
Brief Study and Examination of Policy Proposal on Increasing Trade.
The study has an overall purpose to develop a comprehensive trade policy proposal
assessing the trade performance of Ethiopia and identifying all possible challenges
and opportunities, and specific objectives to meet:
Show the trend of trade performance in the context of Ethiopia
To promote development of trade, including intra-trade and inter-trade
commerce
According to the World Bank fact book report (2017), manufacturing represented less
than 8% of total exports in 2016: textile and garments exports have not seen a significant
increment and it constitutes just about only 2% of total exports in 2015. The export
performance of textile and apparel industry geared up to USD 160 million in 2015/16
(MOFEC, 2017)
Ethiopia’s exports and imports are concentrated heavily in traditional services activities.
Ethiopia’s export still has been limited to few primary products, which are mainly
agricultural commodities and looking at the last 17 years (2000-2016) data clearly showed
the export structure of Ethiopia has been characterized by greater concentration on few
traditional exports such as coffee, chat, oilseeds and pulses. According to the information
from World Trade Organization (WTO, 2017), the share of Ethiopia’s manufacturing export
in the total export is only 13.3 percent (implying primary agricultural commodity to be 86.7
per cent).
Monetary Fund Balance of Payments Statistics shows a positive picture, indicating that
Ethiopia’s services exports were slightly higher than expected for an average country at its
level of development. It is important to point out that although exports of services are
critical, Taffesse and Ferede (2004) reveal that in 2000 the “other services” sector’s
exports-to-output ratio was marginally higher than that of the traditional agricultural
exportables sector, which includes tea, flowers, fruits, and vegetables. Furthermore, despite
relatively underdeveloped infrastructure,
Despite relatively underdeveloped infrastructure, Ethiopia’s services trade has registered
dynamic growth rates over the past 10 years. Recent data reveal a compound annual growth
rate for services exports of 16 percent over 2011–13 (IMF BOP 2017).
Ethiopia continues to outperform comparators when measuring services exports on a
value-added basis: Ethiopia’s gross services exports as a share of total exports are the
highest when benchmarked against peer countries. Ethiopia also outperforms other countries
at a similar level of development in all three measures of services export shares (the share of
services in total exports measured as gross, direct, or total value added).
The direct value added of Ethiopia’s services exports continues to be one of the highest
among comparators with the exception of Kenya (World Bank Value Added Database).
Ethiopia’s services imports are again higher than what would be expected for a country at its
level of development (WDI, 2017): The expansion of Ethiopia’s services exports was mainly
driven by transport and travel. Jointly, they accounted for 90 percent of total services exports
in 2012, up from 75 percent in 2002. This is attributed to Ethiopian Airlines, which is
Ethiopia’s largest export earner (three times as big as coffee) and accounts for 60 percent of
Ethiopia’s services sector (World Bank 2014).
Ethiopia’s services trade has registered dynamic growth rates over the past 10 years. Recent
data reveal a compound annual growth rate for services exports of 16 percent over 2011–13.
Imported services, especially from developed countries, often enhance the total factor
productivity of domestic firms. Ethiopia seems to be taking advantage of cheaper and higher
quality services from abroad.
Due to drop in global prices for export commodities since 2012, Ethiopia’s export growth
continued to experience major difficulties. Although some efforts to increase volume of
exports compensated for the loss, overall export earnings declined as percentage of GDP for
most of the last several years.
Imbalances in the external sector have become a major challenge for the country. The trade
imbalance portion is mainly explained by the under-performance of the export sector in
recent years. The other dimension emanates from increased burden from accumulated
external debt contracted to finance major infrastructure projects and productive investments
with the expectation that export earnings would continue to expand. Measures taken by the
government, including policy measures which limited new public sector commercial
borrowing, are arresting further deterioration in the external imbalance.
Annual inflation rate in Ethiopia rose further to 18.6 percent in September 2019 from 17.9
percent in the prior month. It was the highest inflation rate since September 2012, mainly
driven by surging prices of food amid shortages of basic goods such as wheat, sugar and
edible oil. On a monthly basis, consumer prices increased 1.70 percent, following a 2.32
percent rise in the previous month. Inflation Rate in Ethiopia averaged 16.08 percent from
2006 until 2019, reaching an all-time high of 64.20 percent in July of 2008 and a record low
of -4.10 percent in September of 2009.
Moody's credit rating for Ethiopia was last set at B1 with negative outlook while
S&P(Standard & Poor's credit rating) and Fitch maintained their original rating of ‘B.’ These
ratings reflect Ethiopia’s stable outlook and prospects for continued economic growth in the
short and medium term and are on par with neighboring Kenya and Uganda. Access to
finance has been flagged as a serious constraint in Ethiopia (World Bank 2014).
The linkages between financial services and manufacturing are particularly weak. In 2011,
financial services represented only about 3 percent of total services inputs in manufacturing.
Linkages exist primarily with traditional rather than modern services, with distribution
services, such as wholesale and retail activities, seemingly the most important services
inputs for manufacturing production in Ethiopia ((World Bank Export of Value Added
Database)):
The percentage of investment that is financed through firms’ own funds, or the ratio of
collateral to the total loan, is very high in Ethiopia, suggesting difficulties in access to
finance. This is not an issue of demand, but one of supply; the Government of Ethiopia
operates a rationing scheme whereby credit is allocated to the highest need (public
investment, export priority sector, critical imports, and others). The negative real interest
rate leads to excess demand and quantity rationing, such that many firms are completely
excluded from access to finance.
Ethiopia’s real gross domestic product (GDP) growth decelerated to 7.7% in 2017/18.
As of July 2018, eight industrial parks have become operational, with monthly export
performance exceeding 14 million USD and employment of more than 56 thousand people
The Board of the Ethiopian Investment Commission has amended the investment regulation
in August 2018, to allow international private operators to participate in the provision of
services including bonded warehouse, consolidation and de-consolidation services, and allow
joint venture participation of international logistics service providers holding up to 49% of
stake.
The country is striving to make the manufacturing sector to play a great role in GDP growth,
job creation, foreign exchange earnings and Small and medium enterprises (SME)
development Ethiopia has given a special attention to the investment activity; the special
attention given to the manufacturing sector has enabled foreign investors to look in to the
country: which is witnessed within the past ten years in which the total Foreign Direct
Investment (FDI) of the country has increased dramatically and makes Ethiopia to become
the first in Africa and the second in its remarkable growth in the world (Ethiopian Investment
Commission 2016) particularly with the establishment of industrial parks in different regions
are witnesses how the country give special attention for the manufacturing sector.
The National Bank of Ethiopia (NBE) has initiated the preparation of a financial sector
roadmap. The roadmap will layout banking sector reforms, which will be aligned with
Ethiopia’s WTO accession agenda. Furthermore, the roadmap will address key issues
including credit to the private sector and purchase of NBE bonds. During this process, NBE
will also design and implement a market-based framework for issuing and trading
government securities.
In August 2018, the Board of the National Bank of Ethiopia (NBE) passed decisions on four
action areas which are expected to contribute towards easing some of the restrictive
provisions related to the foreign exchange and credit availability to the private sector.
Benchmarking and Comparators Analysis
The research selected Kenya, Rwanda, Tanzania, and Uganda as peers\comparators for
benchmarking or comparisons. Based on the Third ETHIOPIA ECONOMIC UPDATE World
Bank Group Report, JUNE 2014, the following findings has been extracted as detailed below:
The country’s modern services exports (communication, banking, insurance, business, and
remote access services; transcription of medical records; call centers; and education) remain
among the lowest of its comparators. These services differ from traditional services, such as
transport or travel, which demand face-to- face interaction.
Ethiopia’s exports and imports of traditional services as a share of GDP reached 7 percent in
2010–12, significantly over-performing comparator countries (except Tanzania and Kenya) and
other countries at a similar level of development. Instead, Ethiopia significantly underperforms in
modern services exports and imports, which measured close to 2 percent of GDP in
2010–12(WDI, 2017). Services exports and imports are higher than expected from an average
country at Ethiopia’s level of development:
Ethiopia’s services export structure is very similar to that of Kenya, with high shares of transport
and travel. Modern services exports have been growing slower and inconsistently for some
sectors, including financial and other business services. Tanzania and Uganda have been
successful in exporting other business services.
Exports and imports of goods and services as a share of GDP increased from 37.5 percent in
2001/02 to 48.7 percent in 2011/12. Ethiopia’s degree of international integration lags behind
countries such as Kenya and Tanzania (74.9 and 79.8 percent of GDP, respectively) while it
exceeds that of Rwanda (45.2 percent). In fact, Ethiopia has the lowest goods export-to-GDP
ratio (7 percent) among populous developing countries. The share of export in import financing
(Export/Import ratio) has contracted from 38.6 percent in 1990 to 27 percent in 2000 and further
it declined to 17.6 percent in 2016. With regard to share of world export, Ethiopia’s share in total
world exports is still very low, amounting to 0.02% in 2016 (WTO, 2017).
Merchandize exports in Ethiopia are only about 9.4 per cent of GDP, compared to an average of
around 30 percent of GDP in Sub-Saharan Africa. Export levels still fall short of what is
registered by other African countries with much smaller populations ( such as Kenya and
Tanzania both export more than $5 billion per year in 2016 (ITC, 2017).
Ethiopia has lower than expected entrepreneurs, lagging behind countries such as Uganda,
Kenya, and Rwanda. The sophistication [which assesses the export baskets of countries by the
incomes of countries that produce similar products, weighted by the share of those exports in the
national basket] of Ethiopia’s exports is comparable to that of peers like Rwanda and Tanzania
because export sophistication is a good predictor of future economic growth. Ethiopia lags
behind peers in Global Competitiveness Rankings and its performance is on a declining trend.
According to the 2013/14 World Economic Forum Global Competitiveness Report, Ethiopia
ranks 127th out of 148 countries in the world. This is behind most of its peers in Sub Saharan
Africa such as Rwanda (66th), Kenya (96th), and Tanzania (125th), but slightly ahead of Uganda
(129th). The pace of regulatory reforms aimed at streamlining procedures, and lowering time and
cost of engaging in trade is slow. Among the ten World Bank Doing Business indicators,
Ethiopia fares the worst in Trading Across Borders, ranking 166 out of 189 economies. Ethiopia
not only ranks behind Kenya and Rwanda but also Uganda, and Tanzania in the procedural
aspects of trade as judged by mid-sized Ethiopian exporters. The 2018 World Bank’s Ease of
Doing Business report (EODB) ranked Ethiopia 161th out of 190 countries;
Being landlocked cannot be the sole cause for bad logistics performance, as Rwanda has
demonstrated. In 2010, Rwanda’s ranking on the Trading Across Borders indicator was lower
than Ethiopia’s, and its shipping costs even today are significantly larger than those faced by
Ethiopia. Over the past five years, Rwanda has made substantial improvements in areas in which
it has direct policy control: i) it improved trading times with administrative changes such as
increased operating hours and enhanced cooperation at the border; ii) it reduced the number of
trade documents required and enhanced its joint border management procedures with Uganda
and other neighbors, and iii) it introduced an electronic single-window system at the border. The
impact of these reforms has been to reduce the number of days it takes to export from 38 to 26
(an improvement of 32 percent). In Ethiopia, the average number of days to export dropped by
only 6 days (12 percent) from 50 to 44 even though it can be argued that it is easier to reduce the
time and costs when they are highly inefficient to begin with. Ethiopia is currently undertaking
some crucial investments to improve trade logistics in the medium-term. With several new public
investments in roads, a rehabilitated rail link between Addis Ababa and the rapidly modernizing
container port of Djibouti, the expansion of the dry port in Modjo, expanded coverage of the
multi-modal transport system and coordinated reforms between customs and shipping-related
agencies, trading is expected to be simplified with costs and dwell time reduced. This will
ultimately help increase farm-gate prices relative to exports, which at present is only about 60
percent (IMF 2013). More generally, access to finance, land, and electricity are some of the most
binding constraints faced by Ethiopian firms.
A key to competitiveness is shipping containers quickly and inexpensively. Rwanda, which faces
more crippling shipping costs, performs better than Ethiopia in overall trade-related operations
because of its reforms in operating hours, joint border management procedures with neighbors,
and introduction of an electronic single-window system.
Ethiopian regimes for standards and certification are inadequate, but in line with that of its peers.
According to the World Bank Enterprise Surveys, almost 14 percent of firms have earned quality
certification that is recognized by global bodies like the International Standards Organization
(ISO), a proportion higher than in Kenya (10 percent) and Rwanda (12 percent). In terms of
auditing/financial standards, Ethiopia does even better. The scale of adoption of modern
production and business processes by Ethiopian firms also appear to be better than what the per
capita figures suggest. Forty-three percent of firms in Ethiopia have their own website and use
technology licensed from a foreign company, the highest proportion among its peers.
Incentives and Disincentives
The tariff regime of Ethiopia has substantially reduced tariff rates across the board. Currently,
quantitative important restrictions are applied only to used clothes, harmful drugs and armaments
for security reasons. Both tariff levels and dispersions have been reduced substantially. Specific
tariffs have been converted in to advalorem equivalents. There are no preferential tariff offers.
The tariff structure involves an average rate of 16.8% and a maximum of 35%.
While 4% of the tariff lines are duty free, there is no any protective rate for so called sensitive
products.
The tariff structure also reveals that both for agricultural and non-agricultural products, just over
50% of the tariff lines fall below the 10% duty rate, while the balance fall under the 15 to 35 %
duty rate. That is, the tariff lines for both agricultural and non-agricultural products, are
nevertheless evenly distributed across the tariff rate with a margin towards the lower end of the
tariff bracket.
A two-pronged policy of import substitution and export promotion by protecting the domestic
market while explicitly promoting exports (Staritz and Whitfield, 2017). Through this strategy,
firms exploit the stability of supplying the protected domestic market to accumulate capital and
profits, which they can then direct towards importing the competitiveness of their exports. Tariff
protection for the sector remains relatively high, duty drawback and voucher schemes are in place
to encourage export-oriented production. Bonded warehouses are available to alleviate
bottlenecks in trade and logistics, thereby reducing unit costs and trade transaction costs. The
government actively pushes forms to export for instance; they are required to submit export plans
on an annual basis and must meet preordained export targets to qualify for exports.
Duties on all exports are now removed
A financial credit support system (export credit Scheme) to the export sector for pre and post
shipments is structured
An export trade duty incentive scheme
Duty drawback scheme
Voucher scheme
Bonded manufacturing warehouse scheme
Distribution and Sales Channels
Ethiopia requires that all imports be channeled through Ethiopian nationals registered with the
Ministry of Trade (MOT) as official importers or distribution agents. The importer or agent is
required to apply for an import license, and register with the MOT as well as the National Bank
of Ethiopia (NBE) for a foreign exchange permit.
Access to foreign exchange the leading obstacle faced by Ethiopian importers seeking to source
goods and services from the international market. Importers often wait for months to open a letter
of credit for imports and receive an allocation of U.S. dollars due to an acute scarcity of foreign
exchange. Most distribution in Ethiopia, particularly to regional towns, is conducted through
informal business arrangements. For example, after being cleared through customs, many goods
will be sold to wholesalers in Addis Ababa's largest open market (Merkato) and then distributed
to retailers and small vendors.
As a landlocked country, Ethiopia relies heavily on the port of neighboring Djibouti for the
import and export of goods. Port Sudan in neighboring Sudan and Berbera in neighboring
Somalia are used to a lesser degree. In March 2018 Ethiopia concluded an agreement with the
Somaliland Ports Authority and DP World to acquire a 19 percent stake in a joint venture
developing the Port of Berbera, which may result in expanded shipping routes to Ethiopia via
Berbera. In July 2018, Prime Minister Abiy Ahmed signed an agreement with President Isayas
Afeworki to restore diplomatic relations and trade, which also signals the potential for Ethiopian
bound shipping to transit via ports at Assab and Massawa in Eritrea. Ethiopia has built seven
inland ports in Modjo, Kallity, Semera, Mekelle, Dire Dawa, Gelan and Kombolcha with an
installed handling capacity of 22,000 containers. The dry ports, notably the dry port in Modjo,
approximately 70 kilometers from Addis Ababa, serve as intermediate logistics destinations for
cargo. Most goods are transported by trucks from the ports to Addis Ababa and other parts of
Ethiopia. Ethiopia's state-owned companies dominate the truck transportation market. The
overall number of trucks is presently insufficient to meet demand.
A Chinese-led infrastructure project to revamp Ethiopia's rail system, which connects Djibouti
port to Addis Ababa began operations in 2018. The new rail system transported its first cargo of
wheat in 2016 for distribution to drought affected regions. This rail system has the capacity to
move 3,500 tons of cargo on a single trip. The Ethiopian Shipping and Logistics Service
Enterprise (ESLSE) claimed the new rail system has significantly enhanced its logistics capacity
by reducing freight costs as well as shortening cargo delivery delays from more than three days to
just 10 hours. Logistics costs constitute 30% of Gross Domestic Product (GDP) and the
Government of Ethiopia (GOE’s) goal is to reduce it to less than 22% by 2020 and to reduce port
dwell time from 40 days to 3 days. Ethiopia has recently signed a memorandum of understanding
with Somalia that will enable it to use the Berbera port for shipment of goods. The port of
Berbera is finalizing preparation to handle this trade.The construction of the Lamu-Garissa-Iolo
road linking Kenya to Ethiopia now provides significantly improved access for landlocked
Ethiopia to the Port of Mombasa. The road corridor will also be key in supporting the Lamu
Port-South Sudan-Ethiopia-Transport (LAPSSET) corridor.
Exports forecast for 2019/20 remain at a record level 4 million bags (240,000 metric tons).
Around 20,000 bags more than 2018/19 estimate, keeping Ethiopia’s place among the world’s
coffee leaders.
The Ethiopia Commodity Exchange (ECX) was established in 2008 to reduce price volatility and
incentivize farmers to plant coffee. However, the lack of traceability at the ECX did not meet
consumers’ demand for traceable, farmer-specific or organic certified coffees. To address
traceability issues, starting 30 April 2017 exporters with valid export license of for the marketing
year can sell directly to international buyers, under the condition that the coffee loaded trucks
must be sold within three days of arriving at the processing warehouses in the capital. If the
coffee remains unsold after three days, they will be forced to sell on the existing ECX platform,
but with traceability intact. The other major change is that farmers may sell beans directly to the
roaster without entering to the Ethiopian Coffee Exchange platform.
Coffee is the most important foreign currency earner for Ethiopia. In addition to ensuring the
volume and quality of coffee exports, exporters must properly manage the contracts. While most
exporters assist the economy by supplying quality coffee to the international market, the
government is also taking strict actions against those who fail to comply with their contracts. In
March of 2019 alone 81 coffee exporters have been banned from trading with the Ethiopian
Commodity Exchange (ECX) because they defaulted on their contracts. Ethiopia has more than
400 coffee exporters, 395 coffee farmers who directly export coffee, and over 30 import-export
companies who export coffee and use the foreign currency to import other materials like vehicles
and construction inputs. Ethiopia exports coffee to over 60 countries. Based on the coffee export
data in 2017/18, the principal export markets for Ethiopian coffee were: Germany (22 %), Saudi
Arabia (16 %), United States of America (11%), Belgium (7 %), Sudan (6 %) and Italy (5 %).
Coffee supplied and traded in the local market usually has a lower quality. Coffee on the local
market is mainly coffee destined for export through the Ethiopian commodity exchange (ECX)
market but was rejected for failing to meet ECX’s quality standards. In spite of the fact that
coffee supplied to the local market has low quality, the price of coffee in the local market is
usually higher than export prices. As a result of this price disparity, some coffee shops in most
large cities have started mixing coffee with barley grain to get more profit. (ECX 2011).
Ethiopia exports coffee almost all in raw form, unprocessed green coffee beans. Processed coffee
– roasted, grinded and packed coffee – export if available is very little. Due to Government
restrictions for the benefit of boosting export volume for foreign currency, the limited coffee
roasters and processors available in the country are expected to use the rejected lower quality
beans (broken, damaged by insect or during processing, shrunken or poorly developed beans,
etc.) which are only allowed to remain in the country for processing and domestic consumption.
This types of inferior green beans, even if processed, can only be used for local distribution since
it cannot qualify the standard quality for export. Currently, because of the Government‟s policy
support of investment on coffee value-addition or processing, certain private entrepreneurs
processing coffee (roasting, grinding and packaging) are emerging in the country. It, however,
appears that the processed coffee business is largely targeting the present booming international
hotels and coffee shops in the country since access to high quality green beans for export
processing is limited. In order to promote value-added products and consequently maximize the
foreign exchange earnings from coffee, the government should continue putting in place
favorable policy environment that further encourage more private entrepreneurs to involve in
coffee processing for both internal and external markets and make the country more competitive
in the global market.
The sundried coffee, on the average (2005/06 – 2014/15), accounts for 70.2% of the total export
while washed or wet processed coffee contributes the remaining 29.8% to the central markets in
Addis and Dire-dawa (Table 5). In terms of monitory value, however, the share of washed coffee
was equivalent to 41% while that of sundried coffee stood at 59% indicating the net increase in
the price of washed green coffee beans by 11.2% over sundried coffee. Therefore, promotion of
washed coffee export should be considered as an alternative strategy for value addition and
maximizing foreign exchange earnings from coffee sale.
Meat and Live Animals
According to FAO STAT, 2014, the Ethiopian meat export marketing system is characterized by
several constraints like inadequate and low quality live animal supply and lack of modern
slaughtering houses and export abattoirs, which resulted in the existing meat facilities to operate
at less than 50% of their operational capacities. There are more than 16 meat industries engaged
in either meat or offal processing: 9 export abattoirs. These functional abattoirs are working
under their capacity (34%).
Despite fluctuation over years, the export of meat [16,877 tonnes] and live animals [472,041
head] have significantly increased in 2010 -2012 Ethiopian Fiscal year [EFY], recording 69%
increment from the previous years [Kefyalew, 2011]. In 2018\19 live animal contributes 33% of
the earning, while 67% was obtained from meat export [ERCA, 2018\19].
However, lack of export routes and ports, illegal live animal trade, shortage of live animal and
lack of appropriate breeding programs are some of the main challenges faced to the sector
[Kefyalew, 2011].
The presence of large livestock population with diverse and adaptable genotypes, and diverse
agro-ecologies for production of different types of livestock, expansion of agro-industries and the
increase of byproduct foodstuffs allowing for enhanced productivity, proximity of the Middle
East countries, high demand for meat and live animals including the domestic market are some of
the opportunities that the sectors have.
Product name Volume in ton\000 head Value in million USD Value share in %
Dairy products 1,239.16 0.12 0.005
Leather products 2,647.88 56.57 2.46
Live animals 24,346.65 45.83 1.99
Meat and meat products 9,104.69 92.65 4.04
Source: ERCA, export data
Before ten years, there were only four export abattoirs having production capacity of 30,380
(23,180 tones sheep and Goats meat, and 7,200 tones beef meat) generated 15.43 million USD
per a year. Then after, government paid attention for the sector's investment to increase the
number of export abattoirs as well as their production capacity; the number of export abattoirs
increased from Four (2007/8 EFY) to Eleven (2018/19 E.C). The abattoir's production capacity
per year also increased to (56,556 tones sheep and Goats, and 40,411 tones beef meat); the
foreign currency earnings from meat export also dramatically increasing from 15.72 million USD
(2007/8) to 92.65 million USD (2018/19). Starting from 2013/14 to 2017/18, Ethiopian meat
export was increasing by an average of 5 %per year, whereas live animal export was decreasing
by 24% at the same time. As we understand from the above figure, the Ethiopian live animal
export was increasing 2009/10 to 2013/14 EFY, and became decline after. The major reasons for
live animal export declination were disease, illegal trade, market destination, lack of quarantine
services, and payment with liability/credit, which may cause for risk on exporters (data
According to ERCA report livestock products export have (195.17 million USD) 8.5% share
from the whole country's export in general, and Meat and Meat products takes 4%, whereas live
animal takes only 2% share in particular, 2018/19 EFY. Ethiopia exports approximately 20,000
tones meat and meat products annually. It have about (92.65 million USD) 47.5% share from the
whole livestock products (meat, leather, milk, bee products) export in the same year. From this
about 80.35 million USD (86.7%) gained from Sheep and Goat meat, 6.2 million USD (6.73%)
from beef and 6.06 million USD (6.55%) was gained from Slaughter by-products export (ERCA,
2018/19).
According to the data available with Ethiopian Revenue and Customs Authority 2018/19, live
animal exports contributed 2% of the earnings and meat exports shares only 4% from the
country's export revenue earnings. Of the number of exported live animals, cattle accounted for
46%, sheep 35%, camels 13% and goats 6%; whereas cattle contributed 67%, camels 25% and
shoats8% to the revenue generated.
According to ERCA 2018/19 report market destination of Ethiopian live animal export before
three years was mainly the neighboring countries; Somalia, Sudan, Yemen, Egypt, and other
Middle East countries. Now days, the market destination of meat and live animals was almost the
same, this implies that the buyers also may be the same. United Arab Emirates and United
Kingdom of Saudi Arabia takes more than 85% share of meat market destination. Ethiopia has a
strong comparative advantage in the region, because of its proximity to large meat importing
economies like Saudi Arabia, UAE, etc. with short delivery times in contrast to countries like
Australia, which supply mostly frozen meat.
Horticulture: vegetables, Fruits, and Floriculture:
Promoting the production and export of horticultural products (fruits, vegetables, and flowers)
has caught the attention of the federal government of Ethiopia. Key in this regard is the
revelation of the horticulture industry which was nurtured through well-designed government
policies. Vertical diversification through establishing agricultural processing industries which
produce value-added quality export products is difficult. However, diversification horizontally
into the export of non-traditional high-value agricultural commodities is one of the possible ways
to reduce over-reliance on a few low-value traditional products and tackle the problem of export
income instability.
Export diversification through horticultural produce was advocated as an alternative export
promotion strategy. Due to the declining export earnings from traditional exports, horticulture
and other non-traditional, high-value, agricultural export expansions represent an important area
of potential income growth
The export destination of Ethiopia’s fruits and vegetables are mostly neighboring countries like
Djibouti, Sudan, and Somalia. High-value fresh vegetables were exported to the United
Kingdom, the United Arab Emirates, and the Netherlands, which may create an opportunity for
the improvement of the fruit and vegetable sectors in the country [EIA, 2012].
According to statistics in Reference [EHPEA, 2017], in 2004/2005, export income generated
from the subsector was 28.55 million USD. In 2015/16, the sector provided employment
opportunities for approximately 183,000 persons and generated earnings of about 274.62 million
USD, making the sector the fifth largest foreign revenue generator for the country.
Ethiopia collected some $318 million from the export of flowers and other horticulture products
Ethiopian fiscal year, which ended July 7, 2019 (Africa Business Networking).
Pulses and Oilseeds
Ethiopia is among the world’s top 10 producers of pulses. Different varieties of pulses are being
farmed, such as faba beans (horse beans), haricot beans, chickpeas, mung beans, lupines, lentils,
dry peas and vetches (Yayo Negasi 2016). The primary producers of pulses are smallholders with
small and dispersed plots under rain-fed conditions (NABC and FME-CWM 2015).
Within Ethiopian agriculture, oilseeds are the most important export crop in terms of volume and
are almost on par with coffee [which is the second largest export commodity from Ethiopia.] in
terms of export value (NABC and FME-CWM 2015). As the seventh largest exporter worldwide,
Ethiopia is a well-known source of sesame seeds.
The European Union and Ethiopia have long-standing trade relationships. Whereas the EU is
Ethiopia’s second-largest partner both for imports and exports. Ethiopia is the EU’s 69th-most
important trading partner (84th on imports and 62nd on exports). Sesame is the second source of
foreign exchange for Ethiopia, after coffee, with over 90% of sesame exported to countries such
as China, Jordan, and Israel according to a new World Bank Group report 2017.
Among the factors impacting pulse exports is that the pulse export sector is dominated by a large
number of small scale exporters lacking efficiency, many of which operate in lower quality
markets.
Hides and Skins: Leather and Leather Products
Agricultural development led industrialization (ADLI) was promoted as the main guiding
principle of Ethiopia’s development process and the leather and leather products (LLP) sector
was identified as one of the main priority sectors. The leather industry is one of the prioritized
industries for the diversification of export and foreign exchange earnings (Ministry of Finance
and Economic Development, 2010 and National Planning Commission 2016). According to
statistical reports of ERCA, the leather sector accounted for 7.2 percent average exports during
2000-2016. The leather and leather products sector is the fifth largest export sector of Ethiopia
which is considered as highest priority sector of the government for its increasing value addition.
Finished leather represents the largest share of Ethiopia’s output and export and it accounted for
around 60 per cent of total leather-related exports in 2016. The value of exports of crust leather
fell from more than $90 Million in 2011 to nil in 2016 after the introduction of a 150% tax on
export of semi-finished crust leather in December 2011. In parallel, finished leather exports rose
from $25.3 Million to $67.6 Million during the same period, the main destinations being China,
Hong Kong, Italy, Thailand India and United Kingdom which constitute 88.8% share (ERCA,
2000-2016).
While Europe had been the main destination until 2011, the United States, China, neighboring
Kenya and Canada came to be the main importers of Ethiopian footwear in 2016, according to
data from ERCA.
During the last two years of the second Growth and Transformation Plan (GTP II), the low
performance of leather and leather products export compared to the plan continued. In 2015/16
the plan was 206.6 million dollar while the actual export was 115.3 million. In 2016/17 the plan
was 272.7 million USD with the performance of 114 million USD.
Despite some limited encouraging results, the leather and leather products industry faces
enormous challenges. The problem of the leather and leather products sector among others
includes shortage and low quality of raw materials, high cost and inefficient logistics,
transportation and custom services, lack of information, power and water utilities, marketing
orientation, lack of skilled human resource (both technical and managerial), low level of
technology use and financial constraints which limits the competiveness of the sector (LIDI,
2015).
Apparel Products: Textile and Garments
Ethiopia has the largest potential domestic market in Africa for textile products. Textile and
garment sector is among the priority subsectors identified by the Ethiopian government in
transforming the country’s traditional agricultural based economic activity to industrialization
lead rehearsal.
Although the purchasing power of the people is still limited, the fast growing economy of
Ethiopia would create a better scenario for the local textile market. Given the large size of the
local market, the huge textile and apparel imports, it is obvious that there is unexploited potential
for producers.
Ethiopia’s textile industry comparative advantages namely its suitable climatic conditions for
production of raw materials for the sector, abundant and low labor cost, cheap electricity,
preferential market access, and relative proximity to important markets.
Ethiopian textile industries cannot compete in the global markets because of poor performance.
As a landlocked country, Ethiopian goods must travel long distances before reaching the port of
Djibouti, from where they are shipped throughout the world, despite Ethiopia’s proximity to
important markets and lower labor and electricity costs, there are a variety of causes for the weak
logistics system: the road infrastructure in rural areas where many textile mills are located is
quite poor. As a result, transport to and from these facilities can be slow (ETIDE value chain
roadmap, 2015).
The shortage of foreign currency in the country delays the opening of letter of credits which
increases the lead time to import textile raw materials and spare parts.
Energy shortfalls reduce profitability and diminish the ability of companies to meet buyer
requirements. The current power outages represent a pressing challenge for the textile sector.
Blackouts result in underproduction and can also lead to failure to deliver orders and breach of
contract, resulting in both reputational and financial damage that may be irreparable. The outages
themselves can contribute to the continued reliance on basic, low value added and low risk goods
(ETIDE value chain roadmap, 2015).
Inefficient custom system leads to high costs and delays. The high cost of delay is particularly
troubling most of imported inputs, meaning that many exporting companies are hit twice with the
cost burden. The length of time required for trading procedures is just as worrisome, as it reduces
the ability of the sector to respond flexibly to buyer demands after receiving an order.
Excessive and unreliable transportation reduces the price competitiveness of Ethiopian goods. In
international markets it hinders the ability of enterprises to deliver goods in a timely fashion.
Currently, Ethiopia has about 190 textile and garment firms out of which 80 are involved in
manufacturing of export goods (ETDI Company’s Profile).
Study Methodology (only indicative and to be finalized during the primary data analysis)
As per the terms of reference and inception report, secondary data has been collected from World
Bank, WTO, ITC Trade Map and the United Nations Commodity Trade Database
(COMTRADE), World Economic Outlook Report (WEO), World Development Indicators
Database of the World Bank, IMF Direction of Trade Statistics Database, Ethiopian Revenue and
Custom Authority (ERCA), National Bank of Ethiopia (NBE), and Ministry of Finance and
Economic Development reports. The secondary data collected and analyzed sometimes even
traces 15 years and before to capture thought insights. Master theses, doctoral dissertations, and
journal articles were deeply investigated. Results obtained under snapshot of macro-economic
performance were already analyzed using different models by the World Bank group in the third
and first economic update and the document can be shared for further referencing. Since data
values are same across their sources, re-run of these would exactly generate identical results.
Thus rather than going to piecemeal and cumbersome data collection and capturing within this
hurry time and resource constraint, we have found that it is better to syntheize results generated
using the same data sources by world bank, African development bank, and various research
findings.
The computable social accounting matrices for the computable general equilibrium will be
produces for the ensuing few days since data has been already compiled for inputing, and we are
adjusting some technicalities like forecasting capability, baseyear selection (since Ethiopia has
two Sam Matrices but some way varing: the 2009 and 2015).
Gathering of primary data is undergoing and when finalized it will be analyzed and added under
the section presentation and findings.
Also, recommendations and gaps will be joined together from the primary and secondary
findings as a final closure.
Currently, data are on collection from the following entities:
Selected importers
Others