Connecting local enterprises to global markets:

Situation in Ethiopia

Tadele Ferede (PhD)

Department of Economics

Addis Ababa University, Ethiopia

Presented at the workshop on Connecting local enterprises to global markets, International Trade Center, Geneva

October 8, 2014

Outline

1. Introduction

2. Review of trade support institutions

3. Structure of Ethiopia’s trade: Macro and sectoral

4. Some results: Micro level surveys

5. Conclusion

1. Introduction ADLI as Ethiopia’s long-term development

Export drive has been top priority for national development

An export development strategy has been devised

The Ethiopia’s Export Development Strategy has twin

objectives:

– promote rapid economic growth with a stable macro-

economic environment

– enhance the integration of the Ethiopian economy with the

world economy

A few export-oriented sectors were targeted for policy

attention, incentives and other supports.

– Agriculture: flowers, coffee, meat, oilseeds, pulses, and

horticultural products

– Industry: Sugar, textiles and garments, and leather and leather

products.

Ethiopia has promoted exports with incentives,

intensive policy support, Export Steering Committee,

etc.

In addition, sector-specific institutes were created

2. Support institutions

Government has established sector-specific institutions to

provide targeted support

Ethiopian Commodity Exchange (ECX)

The Textile Industry Development Institute (TIDI)

established in 2010 based on Regulation No. 180/2010

The Leather Industry Development Institute (LIDI)

established Regulation No. 181/2010

Food, Beverages and Pharmaceutical Industry Development

Institute

5

• Chemical Industry Development Institute

• Ethiopian Dairy and Meat Development Institute (Regulation

No.143/2008)

These institutes support the development of the industrial

sector through

technology and knowledge transfers

upgrade production,

quality improvement, and

marketing

6

Figure 7: Institutional support to exports National Export Coordinating

Committee (NECC)

Infrastructure Production and Marketing Finance Customs and

Logistics

Technical Committees

Sub-Committees

Ethiopia also uses both fiscal and financial incentives to

promote exports

Fiscal incentives

Tax concessions

Voucher

Duty-drawback: exempted from the payment of customs duties and other

taxes levied on imported and locally purchased raw materials

8

Financial incentives

Credit access: 70% of their investment capital from

development bank of Ethiopia

Export credit

Export credit facilities for pre-shipment and post shipment

transactions

Export credit guarantee scheme

Neither the inputs imported nor the goods produced using

such benefits are sold in the local market.

9

Table 1:Export promotion schemes in Ethiopia and selected African countries

Kenya Mauritius Rwanda Ethiopia

Incentives for export

activities

x x x x

EPZs x x x ?

Export promotion

(manufacturing)

x x x x

Standardization, quality

improvement for exports

x x ?

Measures to attract export-

oriented FDI

x x x

Facilitated credit for non-

traditional exports

x x

Selective tariff protection x x x x

Export duties to favour local

manufacturing

x x x

10

SMEs

SME development strategy adopted in 1998

A revised SME development strategy introduced in 2013

The supports provided by the government include tax

incentives, infrastructure, finance, capacity building etc.

Firm capacity matters for participating in the global value

chains

11

Figure 8: Market linkages between SMEs and other enterprises

Large Enterprises

Medium Enterprises

Outsourcing

Subcontracting SMEs

12

Marketing:

Regional

Global

Government support

(e.g. SME Agency ,

TVETs, and

Entrepreneurship

Development Centre

(EDC))

Government support (e.g. LIDI,

TIDI, etc) and technical

assistance

Figure 9: Firm level GVC

GVC (and Competitiveness)

Productive resources Entrepreneurial

capabilities

Productive linkages

Human resources

Financial resources

Physical capital

Other resources

Core competencies

Technological

capabilities

Backward and forward linkages

Information flow and exchange

Resource flows

Territorial productive clusters

Global value chains

FDI-local entrepreneur linkages

Inter and intra-firm linkages

Institutions and policies

Elements of capacity

13

3. Structure of exports: macro and sectoral

Private final consumption

accounted for more than half of

GDP

The share of investment has

increased

Exports remained low as a share

of GDP

Figure 1: Share of demand side elements in GDP (%)

-10.00.0

10.020.030.040.050.060.070.0

2005/06 2011/12

Private final consumption and

investment have been key

drivers of growth

The growth contribution of

exports remained low

Figure 2: Growth contributions of

demand components (%)

15

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0 2005/06 2011/12 2012/13

16

Primary commodities

dominate the export basket

Horizontal diversification

towards high value

agricultural products

Limited progress in export

diversification across sectors

Figure 3: Trends in merchandise exports

0.010.020.030.040.050.060.070.080.090.0

2000/1

2001/02

2002/03

2003/04

2004/05

2005/06

2006/07

2007/08

2008 /

09

2009 /

10

2010/ 1

1

2011/

12

Agriculture (share in merchandise exports)

Non-agriculture (share in merchandiseexports)

17

Fig. 4: Share of top ten exports

in 2000/01 (% of total export)

Fig. 5: Share of top ten exports in 2005/06 and 2011/12

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Co

ffee

Oil

Seed

s

Leath

er

& L

eath

er…

Ch

at

Go

ld

Pu

lses

Pre

pare

d F

oo

dS

tuff

s

Liv

e A

nim

als

An

imal

Pro

du

cts

Flo

wers

0.0

10.0

20.0

30.0

40.0

Co

ffee

Oil

Seed

s

Leath

er

& L

eath

er…

Ch

at

Go

ld

Pu

lses

Pre

pare

d F

oo

d s

tuff

s

Liv

e A

nim

als

An

imal

Pro

du

cts

Flo

wers

Tex

tile

s &

Texti

le…

2005/6

2011/12

18

Export market

destinations increased

from 67 in 2001 to 136 in

2012

Import sources increased

from 117 in 2001 and 145

in 2012

Extensive margin

Figure 6: Ethiopia’s

trade partners

0

20

40

60

80

100

120

140

160

20

01

20

03

20

05

20

07

20

09

20

11

Number oftradepartners(Imports)

Number oftradepartners(Exports)

19

Agricultural exporters

The large number of sample exporters are

Ethiopian nationals

Fig. 10: Sectoral composition of

sample firms

Fig. 11: Sample firms by

nationality

4. Some results: Micro level surveys

0102030405060708090

0.020.040.060.080.0

20

Sample firms include

largely private exporters

Fig. 12: Type of firms

Fig. 13: Exporters by year of

establishment

0

10

20

30

40

50

60

0

5

10

15

20

25

30

35

40

45

21

A large number of sample

exporters don’t produce

Slightly more than a third

of sample respondents

both produce and exports

Fig. 14: Features of exporting

firms

0

10

20

30

40

50

60

70

Producesand exports

producesbut doesn't

export

Doesn'tproduce

but export

22

A large number of

sample exporters employ

fewer workers

Employment increased

in 2012 compared with

at the time of started

exporting

Fig. 15: Share of exporters by

number of workers

0 50 100

Less than 100

100-199

200-299

300-399

400-499

500-999

1000 and above

2012/13 Started exporting

23

Internet as main export

market information

Fig 16: Sources of export major

market information

0 50 100

Ministry of Trade

ECX

Internet

Chamber ofCommerce and…

Other governmentagencies

24

Majority didn’t

introduce improved

method of

delivering goods

Limited focus on

R&D

Table 17: Improved methods of

supplying goods and R&D budget

Introduced improved

methods of delivering

goods Budget for

R&D

Yes 37 36.9

No 63 63.1

Institute/actors helped to improve methods

Other domestic firms 12.5

Foreign firms 24.1

Customers/suppliers 43.8

Universities/Research

institutes 6.3

Multilateral Agencies 1.8

Shareholders 4.5

Government agencies 4.5

Others 2.7

25

Market research and

planning have not given

much attention

About 53% rarely or

never conducted market

research and planning

Fig 18: Conduct market research and

planning?

0

5

10

15

20

25

30

35

26

Problems include

shortage of domestic

suppliers,

price uncompetitiveness

unable to meet deadlines

quality problems

Fig 19: Problems impeding exports

(% yes)

0 20 40 60

Inability to produce to potential clients’

standards, …

Inability to produce to potential clients’

schedule

Cannot match pricesof foreign

competitors

Lack of reliablesupplier of inputs or

intermediary…

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Default or credit risks:

24% reported sales cancellation in 2012/13 (default

on the part of buyers) Price volatility and

Inadequate quality has been reasons for sales cancellation

About 15% reported that up to 20% of their sales

value cancelled due to quality problems in 2012/13 Sample at the time of contract versus actual good delivered differ

in terms of quality

Adulteration problems (mixing low and high quality products)

28

Lack of proper

institutional support

Inadequate services

in the area of market

and product

information, and

licensing and

registration

Fig 20: Institutional support for

exports (% yes)

0 20 40 60

Very strong

Strong

Weak

Very weak Market andproductinformation

Licensing/registration issues

Investmentpermits

Standards

29

Poor quality of

telecommunications services

Both access and quality of

electricity a problem

Fig 21: Electricity and

telecommunication services

01020304050

Access to and quality of electricity

Quality of telecommunicationsservices

Conclusion

There is a need to establish an institution responsible

for handling export-related activities in the country

Establish an export development and promotion

agency (EDPA)

Provide regular counseling supports to exporters on

international businesses (e.g. after delivery payments,

before shipment payments, etc.)

30

THANK YOU !