Ethiopia: Diversifying Export Products to Maximize Market Options

The agriculture sector is mainly characterized by the archaic mode of production and subsistence nature is the mainstay of the nation’s economy. It created job opportunities for 80% of the labour force out of the 130+ million populations.

Realizing the aspiration to attain structural change without diversifying the economy and relocating rural labour to the modern sector is unthinkable. Considering these, the government has been determined to diversify the exports with a priority set for strategic sectors like light manufacturing in which textile and apparel-manufacturing industries are incorporated. In addition, livestock and mining can serve to support diversification.

Though Ethiopia is categorized as one of the poorest countries based on the per-capita income in the world, its economy is growing, trying to address unemployment and increase production and productivity.

Diversifying the economy necessitates changing the economy from low-level productivity to higher one. To realize these employing well-trained labor force, cutting-edge technology and infrastructure and building a strong value chain to meet market demand is essential.

Demis Chanyalew (PhD), an economist, said that Ethiopia is categorized as a mono-economy because agriculture plays a dominant role in the economy. The sector supplies its product to the market at least at the subsistence level, supplies products to the agro-industries used as inputs and it is the major export earner. Most products are also exported in their raw form hence making them less incompetent in the world market. Therefore, to win the market diversifying the economy has been taken as a way out.

Expanding manufacturing and services which utilize local inputs at maximum level and intensive labour such as textile and garment is essential to meet the goal. In addition to these expanding leather product factories mining and pharmaceuticals are vital. Manufacturing in addition to diversifying the economy boosts exports, accelerates import substitution, attracts foreign investment and boosts innovated sectors run by the private sector.

The country has abundant natural resources and agricultural products which can be used as input for manufacturing. Among others the availability of cotton, cheap workforce, and low-cost energy supply can be mentioned in this regard.

Labour-intensive sectors create job opportunities for thousands including textile and apparel industries growth and development strategies in developing countries like Ethiopia are immense but not well exploited. The textiles industry is important in economic and social terms: in the short-run by providing incomes, jobs, especially for women, and foreign currency receipts, and in the long run by providing the country with opportunity for sustained economic development.

In addition to making fabrics and clothing at home by individuals for personal use up until the revolution of industries in Europe, the textile industry has joined the global value chain. Some countries import processed textiles change them into finished goods and export them to other countries. Here in our country, edible oil-producing factories import processed materials utilized as input for making edible oil and after changing it into finished goods supply it to the local market.

The potential of the textile and clothing industries to contribute to long-run growth and development will depend not only on the role of the investors but also on the quality and effectiveness of government policies, enabling environment, taxation and custom service and strong institutions which enforce laws and contracts.

The industrial countries modern history tells that economic structural change was attained from low productivity of agriculture to the higher productivity of manufacturing and services. Diversifying production needs the expansion of the modern sector particularly absorbing excess unemployed semi-skilled work force.

The textile industry has become a very complex one and it starts in agriculture with fibre production, and husbandry of sheep and silkworms, and this indicates how it has created a market for agriculture. Mining of metals and minerals and the fibres are processed into yarns, fabrics and apparel.

The textile industry creates a link with agriculture but for the advancement of the sector, sufficient modern cotton plantation is essential. In our context, it is not expanded as per the industry requirements. In addition, the local cotton species planted here is vulnerable to insects and protecting the plant from insects through spraying chemicals is time-consuming and brings environmental devastation. Hence it is preferred to import better cotton species which withstand insects and diseases but currently due to a shortage of hard currency there is little chance to import the needed cotton types which in turn hampers the expansion of textile production.

Costentinos Berhe (PhD) is an economist and works as a consultant for various firms. As to him, the garment industry is now contributing a lot to the employment sector. It is the main source of manufacturing employment and exports.

Manufacturing has its own role in diversifying the economy. He said despite relatively low start-up investment costs, expansion of the sector provides a base upon which to build capital for more technologically demanding activities in other sectors. Apparel industries have become increasingly more knowledge-intensive as investments in intangibles such as knowledge of soils and farming techniques, research and development including the production of software and the application of biotechnology, design capabilities, engineering skills, training, monitoring, marketing and management have come to play a greater role in the production of goods and services.

The sector is able to attract foreign investment and currently, Turkey and Chinese investors are engaged in textile production.

In the last two decades, Ethiopia has been striving to attain structural change and to that end, the previous EPRDF regime introduced GTP I and II. The program enabled the country to attain economic growth but the achievement gained with regard to transformation is very little and less than two percent. The achievement is only manifested by the construction sector by bringing rural labour and employment to the urban centers.

The absence of a better enabling environment for investors giving very little space to the private sector and bureaucratic hurdles in the past attributed to the unfulfilled accomplishments. It should be understood that achievement is only obtained through dedication, creating an enabling environment and providing better tax and customs services.

The textile industry has been utilized to produce bags and other means of carrying objects, balloons, kites, sails, parachutes, clothing, flags, furnishings and other home accessories, industrial and scientific uses like filtration, nets, rugs and carpets, among others, to serve the public as per their preference.

From an international market perspective, apparel exports encounter both favourable and unfavorable factors. The export pressure may not ease in the short term, but there is an expected increase in inventory demand in developed countries, faster growth in emerging markets, and rapid development of new methods like cross-border e-commerce. These developments are expected to result in a stable trend in the nation’s apparel exports as prices improve, and the market structure continues to optimize.