connecting local enterprises to global markets: … local enterprises to global markets: situation...
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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
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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
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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
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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
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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
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• 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
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Figure 7: Institutional support to exports National Export Coordinating
Committee (NECC)
Infrastructure Production and Marketing Finance Customs and
Logistics
Technical Committees
Sub-Committees
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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
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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.
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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
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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
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Figure 8: Market linkages between SMEs and other enterprises
Large Enterprises
Medium Enterprises
Outsourcing
Subcontracting SMEs
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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
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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
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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
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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
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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)
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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
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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)
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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
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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
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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
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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
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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
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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
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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
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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)
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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
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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
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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.)
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