Ethiopia: Government Providing Support for Rapid Transition From Agriculture to Manufacturing

Ethiopia is an agrarian economy where agriculture plays a dominant role. The sector is subsistence, vulnerable to the extreme climate conditions, utilizes less inputs that results less output and experience little irrigation practices.

Even if agricultural inputs are utilized to enhance production and productivity, due to the fragmented nature of the land modernizing the sector should still go a long way ahead.

The history of the emerging economies and the industrially advanced countries tells us that they attain structural change and transformation through reducing the role of the primary economic activities, which is agriculture in the economy, and promoting the secondary and tertiary economic activities, which are industry and service sector.

This approach helped them to change the economy from lower production in to an advanced one. In our context, economists have reached consensus that manufacturing plays crucial role to change agriculture led economy in to industrial one.

The sector plays vital role in creating job opportunities to thousands, links with the agriculture sector through utilizing products as inputs, attracts both foreign and local investment, boost export, substitute imports and paves the way for the emerging of private sector led self-sustained economy based on innovation and creativity.

Recently, State Minister of Industry, Tarekegn Bululta underscored that significant reforms have been implemented aimed at stimulating the manufacturing sector. These reforms include macroeconomic adjustments and policies focused on import substitution and export growth, the state minister said.

The manufacturing is one of the critical sectors that will determine the future prosperity of Ethiopia. The sector is currently undergoing massive reforms. The government has already introduced new sound policies and procedures and the sector has witnessed a transformation.

He further said that, the reformist leadership of the country has placed a strong emphasis on the industrial sector and is diligently striving to enhance the sector’s competitiveness while fostering a more conducive environment for manufacturers and significant results have been achieved over the last three years.

A renowned American Political-Economic analyst for Africa Lawrence Freeman on his part told local media that Ethiopia has been building up its manufacturing sector while currently registering remarkable progresses in this sphere of the economy.

The American Analyst who visited textile garment factories, steel complexes, sugar factories and other manufacturing sites, said Ethiopia is clearly making progress in the sector.

He also said that the government is committed to industrialize the nation and various measures have been taken. Among others, constructing infrastructures such as industry parks, providing working places to investors with fair price, supplying energy and piped water to industry sites, providing banking services, introducing new laws to ease bureaucratic hurdles in public offices and adjusting exchange rates can be mentioned.

The new homegrown economic reform program for Ethiopia essentially makes the growth of the manufacturing sector one of its top priorities and is now delivering tangible outcomes.

“I think this shows that Ethiopia has a commitment to build up its manufacturing base, which is essential for any economy to truly function and this is very weak throughout Africa. But Ethiopia is clearly trying to make progress in this area,” Freeman said.

The analyst added that he has observed an increase in the number of people employed in Ethiopia’ manufacturing sector over the past few years.

The sector plays crucial role in creating employment to the youth

He emphasized that producing tangible products is essential for economic expansion, stating that this is the direction Ethiopia is currently pursuing and should continue to pursue more vigorously.

This is how the United States was built by emphasis on manufacturing. It is not replaceable by any other sector of the economy. “So I’m very pleased and also to see the optimism that I’ve seen in all the factories that I’ve been at today” he underscored.

There is a real optimism and enthusiasm growing in Ethiopia, and that, along with other accomplishments such as the GERD, Ethiopia is making progress, and that makes me happy to see Ethiopia make progress.

He underlined that the expansion of manufacturing needs reliable energy supply and in this regard the accomplishment of GERD and other electric power dams will bring a dramatic change in the nation’s energy landscape.

As to him, in many developing countries particularly in Africa, the manufacturing sector is not reached to the full-fledged level because of power outage and interruption which again affects the production volume. Currently most industries in Africa produce below their average capacity due to power outage.

Hence, Ethiopia should draw lesson from other countries challenges and should give due attention to mitigate power interruption.

Freeman argues that because of the colonial and neo colonial policy, Africa has a very tiny manufacturing sector in the Sub-Saharan base, and the contribution of manufactured goods in global trade by African nations is very small.

For him, Ethiopia has a lot of light manufacturing by far, such as a textile industry. He acknowledged that textile and garment industry is labor intensive and can create job opportunities to tens of thousands. It utilizes local raw materials as inputs and can create market to the agriculture sector and boost export playing vital role in garnering hard currency which is badly needed by the nation.

He also said that Ethiopia is the most populous country in Africa with more than 120 million and out of it 70 percent is below the age of 30 and this implies how the nation has prudent labor potential which have the capacity to mitigate poverty and the expansion of manufacturing can absorb this excess labor force.

Having confidence that manufacturing is the most important sector to achieve prosperity, Freeman urged Ethiopia to further accelerate its transition in this regard.

The State Minister of Industry also said that, following the new policy reform introduced in the manufacturing sector, the production capacity of industries in Ethiopia has now jumped from 46 percent to 61.2 percent.

Acknowledging the current contribution of the sector to the Gross Domestic Product (GDP) stands at less than 6.8 percent, the state minister pointed out that concerted efforts are being exerted to boost this to 17.2 percent.

He noted that the manufacturing sector has achieved a significant milestone in its import substitution strategy, generating goods valued at 3.1 billion USD during the first nine months of this fiscal year.

According to the World Bank manufacturing can help provide quality jobs for 2 million plus youth who enter the labor market every year.

The manufacturing sector is nascent and represents only 6 percent of GDP and contributes 5 percent of total employment in 2023 compared to 6.8 percent of GDP in 2022. While it is true that the Ethiopian manufacturing sector has enjoyed steady growth over the last decade it accounted for less than seven percent of GDP in 2023, according to the World Bank, and continues to face a host of challenges.

The main characteristics of the manufacturing sector inherited from the past included: a predominance of foreign ownership and foreign managerial, professional, and technical staffing; great emphasis on light industries; inward orientation and relatively high tariffs; capital-intensiveness; underutilized capacity.

In terms of regional distribution, 39.9 percent of the MSEs were located in Oromia followed by Amhara (34.5 percent), SNNPR (7.2 percent), Addis Ababa (6.7 percent), Sidama (6.5 percent) and Somali (3 percent) regional states.

In the history of global development, industrialization is considered as the most important role player. For this reason scholars and ordinary persons use development and industrialization interchangeably. This idea emanated from the world experience in that all advanced nations had achieved their development goals through industrialization. Consequently, most developing countries view it as their chief development strategy.

By Ethiopian Herald.