"Increased supply of products and export
diversification contributed to high growth rate in
the trade and industry sector"
(Part I)
- Ato Girma Biru, Minister of Trade and Industry
Ethiopia has witnessed a sustained economic growth for the past three consecutive years. The trade and industry sector has contributed a great deal to the economic development. Minister of Trade and Industry, Girma Biru recently held an interview with the Ethiopian Radio and Television Enterprise on the role of the trade and industry sector in the economic growth the country has registered. What follows is a translation of the interview.
Would you please tell us the trend in the export trade over the last three years?
The last three years saw remarkable achievements in all sectors of our economy that have rekindled hope to attain the Millennium Development Goal of halving poverty by 50% by 2015. The trade sector is one of the areas that have shown an increase in volume and income secured. The growth in foreign trade actually has shown a marked growth since 1995 E.C.
In 1995 E.C. the growth in the trade sector exceeded that of the previous year by 10.7%. Then in 1996 E.C. and 1997 E.C. the sector grew by 23.6% and 33% respectively. In the last seven months of this Ethiopian year, the trade sector has registered a 33% growth. Therefore, the trade sector is showing a significant double-digit growth in the past three and four years. In general, increased supply of products and export diversification contributed to high growth rate in the trade and industry sector
What is the current role of coffee in Ethiopia’s export earnings?
Coffee plays a vital role in Ethiopia’s export trade. Since 1995 E.C. the amount of the country’s coffee export has increased significantly. In 1995 E.C. Ethiopia exported a record high of 126,100 tonnes of coffee. In 1996 E.C. the amount of coffee exported grew to 144,629 tonnes and in 1997 E.C. it reached 159,845 tonnes. This indicates that both the volume of export and income obtained from coffee is increasing in the last three years attesting to the fact that coffee still plays a major role in the country’s economy.
How about the export of cereals, oil seeds and spices?
The volume of export and earnings secured from these agricultural products is also showing a marked growth. The amount of exported cereals, oil seeds and spices which stood at 153,548 tonnes in 1995 E.C. increased to 195,000 tonnes in 1996 E.C. and 276,000 tonnes in 1997 E.C. The last seven months export reached 209,300 tonnes surpassing the total export in 1995 E.C and 1996 E.C. whole years. The growth in the export trade is, therefore, largely a result of the increase in the amount of exportable items.
About 29% of the export earning generated in the past seven months was obtained from the export of cereals, spices and oil seeds. This sub-sector is registering significant increase from year to year. Some 136.8 million USD has been secured from this sector in the past seven months alone.
If the amount of coffee export is steadily increasing why was it surpassed by cereals, spices and oil seeds?
The amount of coffee exported has increased from year to year. But its share of the total export earnings in the past seven months was 24.7 % which is next to the share of the cereals, oil seeds and spices. Next to coffee the 3rd export earner was Khat accounting for 10% of the total income followed by meat and live animals which had a 6.5 % share of the total export earning. The export of meat and live animals is registering encouraging results particularly over the last three years.
In recent years Ethiopia has entered the world market with new products and increased amount of some of its earlier products. Would you please specify the new products and those exported with an increased amount?
In the past three years Ethiopia exported both new types of products and an increased amount of agricultural products that had been exported in a limited amount. If we take flower, for example, the export started before three years but the amount was minimal. In 1995 E.C. the amount of flowers Ethiopia exported throughout the year was 210,000 stems and earned only 159,000 USD. But in the past seven months alone, the country secured over 10 million USD from the export of flowers.
There have also been new values added to the export of hides and skins in the past three years. Previously the hides and skins we had been exporting underwent only a first phase processing. Now we have started exporting fully processed leather that can directly be used to produce shoes and other leather products. Though the amount is still insignificant, we have also started exporting shoes. With improved quantity and quality, Ethiopia has a better opportunity to become competitive in the export of shoes.
What other products has the country exported to the world market in the past three years?
In the last couple of years, we have for the first time entered the global market with the export of garments. We have also begun exporting soft drinks, beer, mineral water and wine to neighbouring countries and to cities in Europe and USA where a large number of Ethiopians live. Another major achievement in recent years is the export in large quantity of meat. Previously, the country had been exporting live animals but the export of packed meat was very limited. In 1994 E.C., for example, the country exported meat worth only a million dollar. In the past seven months of this Ethiopian year alone, Ethiopia earned 30.6 million USD from the export of meat. Tea is also another product that we started exporting in recent year. Previously, the country had been importing tea as the local product was not sufficient. This product could be a major foreign currency earner if produced with the desired quantity and quality.
Would you comment on the trend in recent years of the import trade?
The majority of products imported are industrial raw materials and finished and semi-finished industrial products, which account for 26.5% of the total share of the import trade. Petroleum and lubricants come in the second place with a total share of 20.7%. Consumption commodities add up to 21% of the total share of import trade.
How do you describe the performance of the investment sector in the past three years?
In order to see the growth of the investment sector, it would be helpful to compare the performance of the sector in the period 1984-1994 E.C. with that of 1995-1998 E.C. In the first 11 years, the aggregate capital of foreign and domestic investors licensed was 72.5 billion Birr. The registered combined capital of investors in the past three years, on the other hand, is 144.9 billion Birr. Investment projects with a total capital of 72 billion Birr have been licensed in the last six months of this Ethiopian year alone. This is a clear indication that the flow of investment is steadily increasing.
Although the registered capital for the projects licensed is one of the indicators for the growth of the investment flow in a country, the performance of the licensed projects should also be taken into consideration. In the first 11 years, 57% of the registered investment projects have already entered the production or construction phase. This is an encouraging performance as compared to other countries.
Out of the investment projects licensed before 1994 E.C. foreign investment accounted for only 16%, the remaining being domestic ones. But since 1995 E.C. the flow of foreign investment has reached 26%. The registered foreign investment capital in the past one and half year alone was 111 billion Birr.
In recent years the government has given special attention to the development of the agro-processing sector like flowers, leather and leather products, textiles and horticulture. Why is it so?
The reason why the government gives special support to the agro-processing sector is because it is the area that the country can become more competitive in the global market. Besides, the agro-processing sector is known to create vast job opportunities and can be carried out with minimum capital and training. If we take the recently launched flower industry, it has employed 20,000-22,000 workers. As clearly stated in the Agriculture Development Led Industrialization (ADLI) strategy the country is pursuing, Ethiopia’s development endeavour should take agriculture at its centre. Hence, supporting the exportable agro-industry products serves as an important hard currency earner that would ensure rapid economic development.
What are the measures taken by the government to support the private sector?
The government has been taking a number of constructive measures to encourage and support private investment. The government has made it clear in its policies that the private sector is the engine of the national economy. Thus it has created an enabling policy environment for private investors to operate. The government-business community consultations have helped to identify problems in each sector and seek remedial solutions. The consultation is held with chambers of commerce, sectoral associations and individual investors. A system has also been established whereby the government and investors jointly plan activities and regularly follow up their implementation. Such forums chaired by the Prime Minister and pertinent officials have enabled to focus on priorities and tackle major problems. There are also detailed support packages for investors engaged in priority investment areas.
How about alleviating problems related to finance and taxation?
One of the problems raised by the investors is the shortage of finance to effectively run their businesses. The government has arranged a special loan system through the Development Bank of Ethiopia for investors engaged in manufacturing related and export sectors. The government is also providing loans that will be paid in a period of 10-15 years depending on the nature of the project and also a three-year grace period before they pay back their loans. Moreover, the interest rate is made to be no more than 7.5% and the project itself is used as collateral. This is for the establishment of new investment projects. For existing investment projects an Export Credit Quarantine Scheme has been established under the National Bank of Ethiopia (NBE) to provide loan for running their businesses. Under this system investors would get loans equivalent to what they have exported a year before their request for loans. The NBE gives guarantee to eighty per cent of the loan provided. Private banks are also providing similar support to the investors.
Apart from the financial support investors also need taxation incentives. In this regard a system has been in place that relieves investors from paying income tax for 2-7 years (depending on the nature of the project and where they are established and other similar criteria) after the completion of the investment project. Investors are also given the opportunity to import materials needed for the project free of customs tax. They are also relieved of 15% of the customs tax for the spare parts they import.
What type of support does the government provide to investors in facilitating transport and transit services?
Investors engaged in the export sector are not required to pay at hand when they import inputs and raw materials. Instead the tax is registered in a voucher system and will be payable when they export their products. This system helps reduce financial problems faced by investors. Besides, if investors use local raw materials for exportable items all taxes deducted from the products will be returned to them later. The government has also introduced minimal shipping prices with the Ethiopian Shipping Lines for exporters to import inputs. Similarly, transit services are given by the Ethiopian Maritime and Transit Enterprise at reduced prices. Governmental transport agencies including the Ethiopian Airlines are also providing services to exporters with a reasonable price to help them become competitive in the world market.
How do you describe the gover- nment’s support to investors in providing training to use improved technologies and to encourage import substitution? Is there any assistance the government renders to investors buying public enterprises?
The government has facilitated training to investors particularly in the areas of textiles and leather industry free of charge. Investors can also use the machines and expertise in the training centres at a very reasonable cost. With regard to support given to entrepreneurs interested in buying public enterprises, the government has lowered the floor prices for selling the enterprises. Besides, now buyers are required to pay only 35% of the total price initially and they will pay the remaining 65% in five years time.
What measures are taken by the government to address problems related to finance, market and land faced by those engaged in micro and small-scale business enterprises?
The micro and small-scale business institutions are one of those areas to which the government has given due attention. As most of these institutions operate in towns and cities, a package that would enable to overcome their financial, market and land problems has been prepared. Credit facilities have been arranged through credit and savings institutions in each regional state and the two city administrations. In collaboration with other non-state actors training on production and marketing have been offered.
Can you tell us the number of jobs created through micro and small-scale enterprises in Addis Ababa and other regional states?
The implementation of the micro and small-scale enterprises development programme differs from one area to another. A significant achievement in the sector was registered in 1997 E.C. In Addis Ababa, Dire Dawa, Amhara, SNNNP and Oromiya states 325,740 people have got job opportunities from this sector. Some 49.5% of the total jobs are made available in Addis Ababa.
(Ethiopian Herald)
