Opportunities, challenges in the manufacturing sector
By Tesfaye Lemma
Although manufacturing industries producing clothes, ceramics, machine tools, and leather products began in 1957, it never developed well until the overthrow of the military rule because the sector was obstructed by lack of infrastructure, scarcity of private and public investment as well as lack of appropriate policies, contributed to the insignificance performance of the manufacture sector pre-1991.
Cognizant of the importance of the manufacturing sector for economic, revenue generation and employment, the government has designed various policies and strategies to develop it. Considering internal, regional, continental and international situations into account, Industrial policies were designed and implemented at different times in a bid to create not only as many job opportunities to the youth as possible but also to facilitate the progress of the entire Industrial development.
In this regard, different international organizations and media have persistently commending the boosting manufacturing sector in Ethiopia. International organizations like World Bank and the International Monetary Fund reported the booming manufacture in Ethiopia every year. CNN, BBC, The economist, The Financial Times and Quartz are some among many international organizations that have reported about this progress recently.
Quartz emphasized the role of the manufacturing sector to the development of the country. It reported that the sector has been playing an encouraging role particularly in the past two years of the second Growth and Transformation Plan. In doing so, the government managed to provide a lot of job opportunities to its citizens in the manufacturing sector.
In fact, the fast sustainable economic development achieved so far could be appreciated but still there is wide range of opportunities amidst the challenges in developing the manufacturing sector. The government has been attempting to overcome the challenges facing the sector and exploit the opportunities to expand and diversify the manufacturing industries and their products.
The idea of developing comprehensive manufacturing industry was started post 1991. The appropriate government policies and strategies is one of the opportunities that helped Ethiopia to develop the manufacturing sector. The policies and strategies carried out by the government encouraged the establishment of various private manufacturing enterprises having reversed the command economic system installed by the previous government.
In fact, the Ethiopian government managed to reverse the command economic system in the country through fostering competition, opening free market economy and promoting the private sector. Besides, the government was devoted in liberalizing the foreign exchange market, rationalize public expenditure, introducing new investment codes and removing export tax refund in its attempt to develop the manufacturing sector.
The 1994/95 – 1996/97 economic reform program was encouraging and promoting potential private investors to participate in the manufacturing sector. These efforts have contributed to the enhancement of broad-based economic growth in the country in general and the manufacturing sector in particular.
According to Ministry of Finance and Economic Development (MoFED), the manufacturing value added well progressed in 1993. However, that remarkable growth of the manufacturing sector has started to slow down to average value added annual growth of 3 per cent in 1996-2003. Following the slowdown, the government adopted an export promotion strategy focusing on diversifying and maximizing the manufacturing products.
Cognizant of such encouraging move towards improving the industrial sector, the government has consolidated its industrial policy and strategy in 2002/03, mainly focusing on the manufacturing sector development in an integrated manner with the smallholder farming.
One of the approaches the government has been utilizing to develop the manufacturing sector was integrating it with the agricultural sector. This was mainly implemented in the first Growth and Transformation Plan.
In due process, the government has developed and created a conducive environment for the private sector. As a result, the participation of potential investors in the manufacturing sector has begun to grow from time to time due to the various incentives set by the government.
These incentives encourage productivity particularly in the textile industry that has performed well in the past two years of the second Growth and Transformation Plan. According to the Central Statistics Agency, the manufacturing sector grew by 11.9 percent and contributed to the Gross Domestic product 36 percent.
It is also crystal clear that the large and medium manufacturing sectors have got a special attention through the industrial park developments in different parts of the country. This is another opportunity for the sector to develop its productivity and competitiveness. The expansion of Industrial parks coupled with the previously established industrial zones could play a remarkable role in promoting the manufacturing sector making easy to both public and private investments.
The incentives and government supports to those private investors who have been investing on the manufacturing sector could also be considered as another opportunity in enhancing the sector. According to Export Trade Duty Incentive Scheme Establishing Proclamation No. 249/2001, the government provides various investment incentive packages including exemption from income tax and payment of custom duty.
Irrespective of all these aforementioned opportunities, there lies a number of perplexing challenges obstructing both the diversification and productivity of the manufacturing sector. According to World Economic Forum’s Global Competitiveness Index 2014 and 2015, the measure constraints in developing the manufacturing sector includes inefficient government bureaucracy, foreign currency regulations, access to finance, corruption, and inadequate supply of infrastructure.
Rent collection and corrupt practices, inflation, lack of peace and stability could also be other mounting challenges that could jeopardize the manufacturing sector in particular and the entire development schemes of the country in general. These challenges could severely affect the execution of the development targets set in the second Growth and Transformation Plan within the remaining three consecutive years.
In conclusion, the manufacturing sector in Ethiopia has been enjoying some opportunities amidst a number of perplexing challenges retarding their development. The government of Ethiopia, since the coming of the Ethiopian People’s Revolutionary Democratic Front (EPRDF) in to power in 1991, has been exerting a tremendous effort so as to upgrade the expansion, diversification and productivity of the manufacturing sector.
Having recognized its benefit to the overall development of the country and its contribution to job creation, the government has been exerting tremendous efforts to develop it. The manufacturing sector can spur economic growth and development because of its immense potential for employment. However, it needs still to withstand the available obstructions that could retard the forward move.