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Tigray REGIONAL BUSINESS AGENDA 2018

ECCSA Sida

PSD Hub Publication No 25

Prepared by:Mekelle University, College of Business and Economics with collaboration of Tigray Chamber of Commerce and Sectoral Associations

Researchers:Teshome Desta (Asst. Professor, MBA)Tesfaslassie Hagos (Lecturer, MSc in Development Economics)

ECCSA Sida

Tigray REGIONAL BUSINESS AGENDA 2018

TIGRAY REGIONAL BUSINESS AGENDA 2018

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Table of Contents

Abstract ................................................................................................................... 1

1. Introduction

1.1. Background of the study ............................................................................ 2

1.2. Statement of the problem .......................................................................... 3

1.3. Objectivesofthestudy

1.3.1. GeneralObjective..........................................................................4

1.3.2. Thespecificobjectives...................................................................4

1.4. Scopeofthestudy......................................................................................4

2. Literature review

2.1. ChamberofCommerceOverview.............................................................5

2.2. GovernmentPolicy,LegalandAdministrationissues.................................6

2.3. Government Subsidies to Companies, Anticompetitive Practices andCompetitionPolicy.....................................................................................8

2.4.Export–ImportMarketing.........................................................................9

3. Methodology of the study

3.1. DataCollectionandanalysismethods......................................................11

3.1.1. Datacollection.............................................................................11

3.2. Sampling structure ................................................................................... 11

3.3. DataProcessingandMethodofAnalysis.................................................13


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4. Discussion and Analysis

4.1. Policy,LegalandAdministrativerelatedissues........................................14

4.2. Anti-competitivePractices.......................................................................21

4.3. Infrastructure ........................................................................................... 25

4.4. AccesstoFinance,ForeignCurrencyandLand........................................27

4.5. Export–Importrelatedissues.................................................................30

4.6. RegionalBusinessAgenda........................................................................31

5. ConclusionsandRecommendations

5.1. Conclusion................................................................................................33

5.2. Recommendation.....................................................................................34

References ....................................................................................................... 36


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List of TablesTable 3.1: Sample respondents from each urban area and business type ............ 12

Table4.1:Policyrelatedquestions........................................................................15

Table4.2:BusinessStart-up..................................................................................16

Table4.3:BusinessExit..........................................................................................17

Table4.4:TaxRate.................................................................................................18

Table4.5:Taxrelatedproblems.............................................................................19

Table4.6:Servicedeliveryrelatedproblem..........................................................20

Table4.7:Anti-competitivepractices....................................................................21

Table4.8:Anti-competitiverelatedproblem.........................................................23

Table4.9:Competitivenessofprivatesector........................................................23

Table4.10:Discriminationintheaccesstostateaid/support...............................24

Table4.11:ExistenceofInfrastructuralproblem...................................................26

Table4.12:WhatInfrastructuralproblemyouhavefaced?..................................27

Table4.13:Loanrelatedissues..............................................................................27

Table4.14:AccesstoForeignCurrency.................................................................29

Table4.15:Mainproblemsidentifiedintheselectedurbanareas.......................32


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List of ChartsChart3.1:Studyareas(towns)..............................................................................13

Chart4.1:PolicyKnowledge..................................................................................14

Chart4.2:Challengesfacedduringestablishmentofafirm..................................17

Chart4.3:PublicServicedelivery..........................................................................19

Chart4.4:RankofPublicservicedeliveryrelatedproblems.................................21

Chart4.5:Anti-competitivepracticesintermsofbusinesssector........................24

Chart4.6:DiscriminationonStateaid/support.....................................................25

Chart4.7:DiscriminationonStateaids/supportsintermsofsector....................25

Chart4.8:InterestRate.........................................................................................29

Chart4.9:RepaymentPeriods...............................................................................29

Chart4.10:Formofworkingplaceownership......................................................30

Chart4.11:Landleaserate(Price)........................................................................30


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ABSTRACTPrivate sector participation in a country’s economy is very important. That is, private sector participation helps to realize sustainable economic and social development thereby improve the living standards of citizens of a country. However, the private sector faces policy, legal, administrative and infrastructural problems that hinder their growth and competitiveness in Ethiopia in general and in Tigray region in particular. Thus, it is necessary to have research based evidence on the current challenges of the private sector in Tigray region so as to come up with possible alternatives and solutions and debate with the government for possible actions. For this purpose, Tigray chamber of commerce and sectoral associations and Ethiopian chamber of commerce and sectoral associations-PSD Hub project have entered into agreement with Mekelle University College of Business and Economics to undertake a research on regional business agenda. The study used both primary and secondary data. The primary data has been collected from business enterprises, government offices, financial institutions and chamber of commerce and sectoral associations. To collect the necessary primary data, the study used questionnaire, interview, FGD and field observation. Sample respondents have been selected using multi-stage random sampling method from different sectors which are located in Mekelle, Alamata, Wukro, Adigrat, Adwa, Axum and Shire Endasilassie. The secondary data has been collected from TCCSA and publications of ECCSA. The method of analysis used is descriptive analysis. Accordingly, the study has identified the major challenges that the private sector is facing in Tigray Region. These include long bureaucracy, delay in public service delivery, power problem(interruption, low capacity of transformer, inaccessibility of the infrastructure), shortage in supply of land, shortage of foreign currency, shortage of financial loan, delay in tax audit, problem of government purchase and bid(lack of transparency and accountability) , unfair competition due to VAT registration based on sales turnover, illegal trade(under invoice and smuggling), centralized system in providing some services( foreign currency request and approval, certification, shipping etc.), inaccessibility of publications (policy, directives and manuals) to private enterprises. To conclude, the private is facing many challenges in Tigray region which can hinder its competitiveness and growth. Thus, the federal and regional governments should try their best to address the challenges so as to encourage the private sector participation which can help to improve the living standard of the society.

Key words: Tigray, Regional business agenda, private sector, challenges


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1. INTRODUCTION 1.1. Background of the studyThenationalregionalstateofTigrayisoneofthe9regionsofthefederaldemocraticrepublicofEthiopiawhich is located in thenorthpartof the country.Accordingto the population and housing census of Ethiopia, the number of population ofTigrayregionwas4,314,456(CSA,2007).AccordingtotheGTP-IIofTigrayregion,thepopulationgrowthrateoftheregionis2.4%.Asaresult,thetotalpopulationofTigrayregionis5,247,005in2017.

Aspartof thecountry’s remarkableeconomicprogress, the regionhasachievedremarkable economic growth due to the realization of significant growth inagriculturalproductionandproductivity; industrysuchastheexpansionofmining,trade,construction,transport,financialinstitutionsandtheexpansionofotherinfrastructures.Asaresult,therealpercapitaincomeoftheregionincreasedfrom1378birr(168USD)in2005/06to1900birr(232USD)in2009/10(BOPF,2010).

Theparticipationofprivate investment is alsogrowing fromtime totime in theregion. Some of the licensed investment projects have started production andplayingtheirroleinreducingunemploymentbycreatingemploymentopportunities(BOPF,2010).

The regional state has implemented the regional first five year growth andtransformationplanwhichcoverstheperiod2010/11-2014/15.Inaddition,ithasplannedand implementingthesecondfiveyeargrowthandtransformationplanwhichcoverstheperiod2015/16-2019/20.

Theregionhasundertakendifferentactivitiesusingdifferentstrategiestoachieverapideconomicgrowthandreducepoverty.Asofthiseffort, it implementedthefirstfiveyearGTP.Asa result, the regionachievedanaverageannual economicgrowthof10.9%attheendofGTP-I.Duringthisperiod,theregionalgovernmentrecognized theprivate sector’s contributions to thegrowthof regionaleconomyandundertakennecessaryefforts.Thus,3,279newprojectshavebeenregisteredwith the total capital of 47.3 billion birr during GTP-I in the region. Out of thisinvestment,45%was invested in themanufacturingsector.However, therewerelimitations in project administration and coordinationof different sectors of theeconomy(BOPF,2015).

Theprivatesector facespolicy, legal,administrativeand infrastructuralproblemsthathinder theirgrowthandcompetitiveness.Tigraychamberofcommerceand


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sectoralassociationisanorganizationthatworkstobridgetheprivateandpublicsectorsoastocreateconduciveenvironmentforthedevelopmentoftheprivatesector.Tocomeupwithpossiblealternativesandsolutionsanddebatewith thegovernmentforpossibleactions, it isnecessarytohaveresearchbasedevidenceonthecurrentchallengesoftheprivatesector.Forthispurpose,TigraychamberofcommerceandsectoralassociationsandEthiopianchamberofcommerceandsectoralassociations-PSDHubprojecthaveenteredintoagreementwithMekelleUniversityCollegeofBusinessandEconomicstoundertakearesearchonregionalbusiness agenda.

1.2. Statement of the problemIt isclear that theprivatesector investmentandparticipation in theeconomy isindispensabletoachievefasteconomicgrowth,reducepoverty,createemploymentopportunityandachieveeconomicdevelopment.Recognizingthis fact, theFDREapprovedInvestmentProclamationNo.769/2012”toimprovethelivingstandardsofthepeoplesofEthiopiathroughtherealizationofsustainableeconomicandsocialdevelopmentthroughparticipationoftheprivatesectorintheeconomy.

Although the country has free market based economic policy and endorsed investmentproclamationto increaseprivatesectorparticipationintheeconomy,membersoftheprivatesectorraisesmanyproblemsthatmustbesolvedbythegovernmentandindicateastheinvestmentclimateisnotconduciveinTigrayregion.

Theregionalgovernmentsaysasitcreatedconduciveenvironmentforprivatesectordevelopmentthroughadministrativeandregulatoryreforms.However,theprivatesectorparticipantsstillraisemanyissues(problems)whichdidnotgetsolutionbythegovernment.Thisshowsastheprivatesectorparticipantsarenotsatisfiedbytheexistinginvestmentclimate.

Tofill thegap inunderstandingtheproblemsandtheircauses, it isnecessarytocome up with research based information and create a dialogue between thegovernment and the private sector participants for a possible solution. This canhelptosolvetheproblemsinthenearfutureandtheprivatesectortoplayitsrolein the economy.


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1.3. Objectives of the study

1.3.1. General Objective

The overall objective of the research is to identify and formulate the BusinessAgendaofTigrayregionandcome-upwithconcreterecommendationstoaddressthese challenges.

1.3.2 The specific objectives are:

1. Toidentifypolicy,legalandadministrativebarriersfacedbytheprivatesectorinthe region

2. Toprioritizepolicy,legalandadministrativebarriersfacedbytheprivatesectorin the region.

3. ToidentifythechallengesthatthebusinessenterprisesarefacinginTigrayregion

4. To prioritize the challenges that the business enterprises are facing in Tigrayregion

5. Tocreatean informedandresearchbaseddialogue betweentheprivateandpublic sector

6. Forwardpossiblesolutions

1.4. Scope of the studyThisstudyfocusedon identifyingbarriersfacedbythebusinesssectorsofTigrayregion.SevenurbanareasofTigrayregionnamelyMekelle,Wukro,Axum,Alamata,Adigrat,AdwaandShireareincludedinthestudy.Despitetheheterogeneousnatureof business enterprises, variety and complexity of their problems’, the researchis delimited on Policy, Legal and Administrative related issues, Anti-competitivePractices,Infrastructure,AccesstoFinance,ForeignCurrencyandLandandExport–Importrelatedissues.


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2. Literature review2.1. Chamber of Commerce Overview

What is a Chamber?

Achamberofcommerceisavoluntarypartnershipofbusinessesandprofessionalsworkingtogethertobuildahealthyeconomyandimprovethequalityof lifeinacommunity.

Asachamberworkstoaccomplishthesegoals, itmustchampionmanydifferentfunctions: economic developer and planner, tourist information center, businessspokesperson, economic counselor and teacher, government relations specialist,humanresourcesadviser,andpublicrelationspractitioner.

Who are Chamber Members?

Chambermembersarebusinesses,organizations,andindividualsconcernedwiththe socioeconomic climate of a community. These groups have joined togetherbecause they stand a better chance of getting things donewhen speakingwitha collective voice. There are no limits or restrictions on the number or kind ofmembersthatchoosetogetinvolvedinachamberofcommerce.

What Are the Objectives of a Chamber?

The chamber keeps these broad objectives in mind as it works to improve acommunity’seconomyandqualityoflife:

• Helpbusinessesprosperandgrow.

• Increasejobopportunities.

• Encourage an orderly expansion and development of all segments of thecommunity.

• Contributetotheoveralleconomicstabilityofthecommunity.

• Promotethenation’sprivateenterprisesystemofcompetitivemarketing.


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2.2. An Overview of Government Policy, Legal and Administration issues

Designingappropriateeconomicpolicyisveryimportantissuetoachieveeconomicgrowthandimprovethelivingstandardsofagivencountry.Suchpolicyencouragesprivate sector participation and proper utilization of national resources such asnaturalresourcesandhumancapitaltoimprovelivingstandardofagivensociety.TheEthiopiangovernmentledbyEPRDFlaunchedaneweconomicpolicywiththeprincipleoffreemarketeconomyin1994.

Sincetheagriculturalandindustrialsectorsarehighlyintegrated,thegovernmentdesigned a new strategy “Agricultural development led industrialization” whichgives priority to the agricultural sector. The objective is to achieve broad basedeconomic development and create surplus agricultural product that can satisfyindustrial demand (Hailemeskel, 2001). To achieve its major national economicpolicyobjective,thegovernmentdesignedsectoralpoliciesandregulationssuchasland,investmentandtradepolicies.

ConcerningthelandpolicyofEthiopia,therighttoownershipofruralandurbanland,aswellasofallnaturalresources,isexclusivelyvestedintheStateandinthepeoplesofEthiopia.LandisacommonpropertyoftheNations,NationalitiesandPeoplesofEthiopiaandshallnotbesubjecttosaleortoothermeansofexchange.Withoutprejudicetotherighttoprivateproperty,thegovernmentmayexpropriateprivatepropertyforpublicpurposessubjecttopaymentinadvanceofcompensationcommensuratetothevalueoftheproperty(FDRE,1994).AlthoughtheGovernmentofEthiopiahasdecentralizedadministrationoflandtotheregionalgovernments,theformulationofbroadlandpolicystillrestswiththefederalgovernment(ARD,2004).

Aspartofthegeneralfreemarketeconomicpolicy,theEthiopiangovernmentstartedrecognizing investment as an engine of economic growth and encouraging theparticipationofprivateinvestmentintheeconomy.AccordingtoFDREInvestmentProclamationNo.769/2012”,investmentisdefinedastheexpenditureofcapitalincashorinkindorinbothbyaninvestortostartanewenterpriseortoexpandorupgradeitsexistingenterprise.

TheinvestmentobjectivesoftheFederalDemocraticRepublicofEthiopiaaredesignedtoimprovethelivingstandardsofthepeoplesofEthiopiathroughtherealizationofsustainableeconomicandsocialdevelopment,theparticularsofwhicharethefollowing:


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1. Toacceleratethecountry’seconomicdevelopment;

2. Toexploitanddeveloptheimmensenaturalresourcesofthecountry;

3. Todevelopthedomesticmarketthroughthegrowthofproduction,productivityandservices;

4. Toincreaseforeignexchangeearningsbyencouragingexpansioninvolume,varietyandqualityofthecountry’sexportproductsandservicesaswellastosaveforeignexchangethroughproductionofimportsubstitutingproductslocally;

5. Toencouragebalanceddevelopmentandintegratedeconomicactivityamongtheregionsandtostrengthentheinter-sectorallinkagesoftheeconomy;

6. Toenhancetheroleoftheprivatesectorintheaccelerationofthecountry’seconomicdevelopment;

7. To enable foreign investment play its role in the country’s economicdevelopment;

8. TocreateampleemploymentopportunitiesforEthiopiansandtoadvancethetransferoftechnologyrequiredforthedevelopmentofthecountry.

In order to achieve the objectives listed above, the Ethiopian constitution andthe InvestmentLawguaranteeprotectionofprivatepropertyand investment. Inaddition, Ethiopia is asignatory of 29 Bilateral Investment Treaties and 6Multilateral InvestmentAgreements that require protection of private propertyrights,principleofnationaltreatmentandrepatriationofcapitalandprofit.Tousetheexistinglaborforceproperly,theEthiopiangovernmentespeciallyencourageslabor intensivemanufacturing industries.Thepromoted investmentprojectsare:IndustryPark,agro-processing,textile&textilegarment,leather&leathergarment,pharmaceuticals,constructionmaterials,andcapitalleasefinancing(EIC,nodate).

Inadditiontodesigningappropriatepolicies,itisimportanttohavegoodlegalandadministrativesystemtogetthefruitsofthepolicies.Toimprovetheadministrativesystem,theEthiopiangovernmenthasbeenpromotingcivicengagementthroughdecentralizationofauthoritytolowerlevelssoastoaddresslocalneedseffectivelyand situating the power for public service delivery closer to the people (UNDP,2014). Inaddition,reformssuchasBPRandBSChavebeenimplemented inthecountryandinTigrayregiontoimprovetheservicedeliverysituation.

However,stilltherearemanylegalandadministrativechallengeswhichadverselyaffectprivatesectorparticipationandeconomicdevelopment.Accordingtodoing


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businessmeasureswhich uses 11 indicators such as starting a business, dealingwith constructionpermits, gettingelectricity, registeringproperty, getting credit,protecting minority investors, paying taxes, trading across borders, enforcingcontracts, resolving insolvency and labor market regulation, Ethiopia is ranked159thoutof 190 countries in theeaseof doingbusiness ranking in 2017 (WB,2017).Thisindicatesasthecountry’slegalandadministrativeconditionsarenotstilleasy for doing business.

InTigrayregion,theservicedeliverysituationofgovernmentinvestmentofficesisnotfastandeffective.AstudymadebyAtakltyet.al.,(2015)bygivingemphasisonthechallengesandopportunitiesofmanufacturingsectorinTigrayregionshowsasthereislongprocess.Outofthesamplerespondents,14percent,34percent,40.8percent,7.7percent,and2.8percentofrespondentsrepliedtheservicedeliveryprocessofgovernmentinvestmentofficesasverylong,long,medium,short,andveryshortprocessrespectively.

2.3. Government Subsidies to Companies, Anticompetitive Practices and Competition Policy

Governments can subsidize companies in many ways. They can grant directsubsidiesortaxbreakstospecificfirms,withorwithoutanystringsattached.Theycansubsidizeinputssuchasland,energy,water,bandwidthfortelecommunicationservices, either because these inputs are under direct government control, orbecausetheyaremarketedbystate-ownedenterprises;guaranteetheloanstakenup by some companies, allowing the beneficiaries to borrowat a below-marketrate;purchasingfromthematabove-marketprices,or,lessdirectly,byforcingsomeothercompaniestopurchasefromthematabove-marketprices(ITC,2012).

However, one could estimate the amount of the aid, or even its existence,differently.Forinstance,non-subsidizedoraidedcompaniesconsideredstateaid/subsidy as anticompetitive practices if that aid/subsidy hurts those companies’competitivenessinthemarket.

Anticompetitivepracticesrefertoawiderangeofbusinesspracticesinwhichafirmorgroupoffirmsmayengageinordertorestrictinter-firmcompetitiontomaintainorincreasetheirrelativemarketpositionandprofitswithoutnecessarilyprovidinggoodsandservicesatalowercostorofhigherquality(OECD,2011).Thoseanti-competitivepracticescanoccuratalocal,nationalorinternationallevel.


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The term ‘competition policy’ refers to the measures that governments taketo suppress or deter anticompetitive practices and promote the efficient andcompetitive operation of markets. One vital component of such policy is aneffectivecompetitionlaw.Thelatterreferstolegislationthatprohibitsorotherwisedealswithspecificanti-competitivepractices,suchascartels,abuseofadominantmarketposition,monopolization,andmergersthatcreateadominantpositionorotherwisestiflecompetition(ITC,2012).

Acarteldefinesprice-fixingormarketallocationarrangementsbetweencompetingsuppliers inamarket. Ithasadverse impacton thedevelopmentof the countrybyraisepricesorreducesavailabilityofindustrialinputsorinfrastructureservicesneeded to market a product. Another anticompetitive practice is an abuse ofa dominant position. It is a practice by a dominant firm inmarkets that extractexcessprofitsfromusersand/orexcludepotentialcompetitors.Itcanpreventnewentrepreneurs from entering a market dominated by an entrenched supplier. Third exampleofanticompetitivepracticeisanti-competitivemergers.Itmeanscombiningof two firms (usually when one purchases the other) to create a monopoly ordominantposition.Thiscanreducesupply,raisethepricesofnecessarygoodsand/ormakeabuseofadominantpositionmorelikely.Finalexampleisanti-competitivevertical market restraints. It is a contractual or similar arrangement betweenfirmsatdifferent levelsof aproduction chain that limit competitionorentrybynewsuppliers.Inparticular,sucharrangementscanformadirectbarriertoexportmarketpenetrationbydevelopingeconomybusinesses(ITC,2012).

Developingcountryfirmsalsofaceavarietyofanti-competitivepracticesassociatedwith intellectual property rights. Such practices,while sometimes analyzed as aseparatecategoryofanti-competitiveconduct,oftenarebestunderstoodasspecialcasesofabuseofadominantpositionorofverticalmarketrestraints(ITC,2012).

2.4. Export – Import Marketing

Export – import has indispensable role in the economic development of onecountryandalso it canbe route for thesuccessofbusinessfirms.Regardlessofthecountry’s size,economicstatusornatural resources theyendowed, theyareengagedinexportandimportactivities.Becauseeverycountryneedsrawmaterialsfrom other countries to produce the products they need or are needed by other countries.Moreover,firmsthatareengagedin internationaltradeare largerandmoreproductivethantheonesthatserveonlydomesticmarkets.


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Exporting is the transfer of goods or services across national boundaries.Mostcompaniesbegintheirexpansionintotheinternationalarenabyexportingintoaforeignmarketandthenmovetotheothermodesofentry(KirubaandBenjamin,2007).

Exportinghasseveraladvantages.First,thecompanyenteringaforeignmarketcan

maintain production facilities at the home and transport the goods or servicesabroad.Inthisway,thecompanycanavoidthesubstantialcostwhichitwouldincurif,itweretoestablishproductionfacilitiesinthehostcountry.Second,thecompanybenefits from the economies of scale and from its global sales volume. Hence,exportingenablesacompanytobenefitfromtheexperience,costeconomiesandfromlocationeconomies.

Third,exportingdoesnotrequireaverysubstantialpresenceabroad.(KirubaandBenjamin,2007).


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3. Methodology of the study3.1. Data Collection and analysis methods

3.1.1. Data collection

i. Data sources:duetothenatureofourstudy,wehaveusedbothprimaryandsecondarydata.Theprimarydatahasbeencollectedfrombusinessenterprises,government offices, financial institutions and chamber of commerce andsectoralassociations.ThesecondarydatahasbeencollectedfromTCCSAandpublicationsofECCSA.

ii. Methodofdatacollection:

The data collection tools used in order to collect the appropriate data arequestionnaire, in-depth interview, FGD and field observation. To collect theprimarydata, sixdatacollectorsand twosupervisorshavebeenparticipated.Whereas, the data collection process from interview and field observation isundertakenbythetworesearchersthemselves.Sincethequestionspreparedforinterviewwereopenendedquestions,ithelpedtocapturetherespondents’individualviews,experiencesandobservationsbeyondthequestionsasked.

3.2. Sampling structure

1. Sample frame

ThesamplingframeofthisstudyistakenfromformallyregisteredfirmsinTigrayregion.

AsperthedataobtainedfromtheTCCSA,therearemorethan100,000businessesregisteredfirms inTigrayregion.Outof thesefirms,wehavetaken161firmsasasample.Thesamplingprocedurethatwehavefollowedismultistagesamplingmethod.First,wehaveassignedaspecificsamplesizetoeachcity/townbasedontheirsize.Then,weproceedbyassigningaspecificsamplesizefromeachbusinesstypethatwehaveselectedastargetarea(MetalandWoodWork,Agro-Processing,Urban Agriculture, Manufacturing, Service, Leather and Textile, Construction).Lastly,wehaveselectedthesamplerespondentsusingrandomsamplingmethod.

SincealargenumberofbusinessenterprisesarelocatedinMekellecity,halfofthissamplesizeis(i.e.,50%)istakenfromMekelleandtheremaining50%istakenfromtheother selected cities. From these161firms,wehave collectedprimarydatathroughquestionnaire.


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Inaddition,wehavecollectedadditionalinformationfrom28stakeholdersthroughinterviewfromalltheselectedareas.Theofficeswhichareselectedforinterviewhavehighattachmentwiththeprivateenterprises.Theorganizationsselectedforinterview are chamber of commerce and sectoral associations,Micro and smallscale enterprises and trade and industry from each of the selected towns. Inaddition,wehave collected additional information from regional offices such assmallandmediummanufacturingandtradeandindustry.Wehavealsocollectednecessarydatafromfinancial institutionssuchasDevelopmentBankofEthiopia,LionInternationalBank,DashenBank,DedebitMicrofinanceandKazacapitalgoodsleasefinancing.

Togetappropriatedatathroughopendiscussion,wehaveselected51participantsfrom business enterprises and public organizations for FGD. These are 17 fromimport-export, 15 from manufacturing, 10 from agricultural investors, 6 fromserviceenterprises. Inaddition,wehaveselectedthreeparticipantsfrompublicofficesnamelyTigrayinvestmentOffice,EthiopianRevenueandCustomsAuthorityandMekellecityrevenueoffice.

Area Coverage and sample size

This study covered main urban areas of Tigray region. These include: Mekelle,Wukro,Axum,Alamata,Adigrat,AdwaandShire. Thesample respondents fromtheseurbanareasareexpectedtorepresenttheprivateenterprisesofurbanareasofTigrayregion.ThesamplesizeandbusinesstypeselectedfromeachurbanareaisclearlypresentedbelowinTable3.1.

Table 3.1: Sample respondents from each urban area and business type

Business SectorLocationofenterprise

Mekelle Shire Axum Adigrat Wukro Alamata Adwa Total

Metal and Wood work 9 4 4 4 2 4 4 31

Agro-processing 4 1 1 1 0 1 0 8

Urban agriculture 6 1 1 2 1 2 2 15

Manufacturing 7 1 0 2 1 1 3 15

Service 33 3 4 3 7 4 3 57

LeatherandTextile 11 1 1 1 0 1 2 17

Construction 10 1 1 2 1 2 1 18

Total 80 12 12 15 12 15 15 161


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3.3. Data Processing and Method of Analysis Afterthecollectionofthenecessarydatathroughquestionnaire,wehavecheckedandcodedeachvariable.ThenextstepwasdataencodingtoSPSSversion20.Sincethisstepiscriticalininfluencingresearchoutput,wehavecarefullyfollowedandmanagedit.Then,wehaveprocessedthedataforeachvariableusingSPSSversion20andproducedthenecessaryoutput.Inadditiontothedatacollectedthroughquestionnaire,wehavesummarizedtheinformationobtainedfrominterviewandFGD.

This studyusedbothquantitativeandqualitativeanalysis. ThequantitativedataisanalyzedusingdescriptiveanalysiswiththeaidoftheSPSSversion20software.Statistical results obtained through this process are presented using Tables andcharts.Inaddition,thequalitativedataisanalyzedproperlytosupportthestatisticalresultsofthedescriptiveanalysis.Mainly,wehaveusedthequalitativedatatofillthegapinquantitativedata.

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Mekelle50%

Shire8%

Axum8%

Adigrat9%

Wukro7%

Alamata9% Adwa

9%

Chart 3.1: Study areas (towns)

3.3. Data Processing and Method of Analysis

After the collection of the necessary data through questionnaire, we have checked and coded

each variable. The next step was data encoding to SPSS version 20. Since this step is critical in

influencing research output, we have carefully followed and managed it. Then, we have

processed the data for each variable using SPSS version 20 and produced the necessary output.

In addition to the data collected through questionnaire, we have summarized the information

obtained from interview and FGD.

This study used both quantitative and qualitative analysis. The quantitative data is analyzed using

descriptive analysis with the aid of the SPSS version 20 software. Statistical results obtained

through this process are presented using Tables and charts. In addition, the qualitative data is

analyzed properly to support the statistical results of the descriptive analysis. Mainly, we have

used the qualitative data to fill the gap in quantitative data.


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4. Discussion and Analysis4.1. Policy, Legal and Administrative related

issues

1. Policy issues

AsoursurveyandFGDindicated,themainprobleminTigrayregionisnotrelatedtopolicybutthe implementationofpoliciesandrules.However, therearesomeconcernsraisedbytheparticipantsof theFGD.One is the land leasepolicy.TheparticipantsoftheFGDmentionedthat,landleasepolicyisbasedoncompetition.However, since the current land supply is not in linewithour growth (supply islowerthandemand),itisleadingtorentseekingandunfaircompetitiontogetland.

TheotherpolicyproblemraisedisthedoubleauditingproblemofPLCs.AccordingtoourFGD,PLCsareforcedtobeauditedbytheregionalandfederalgovernments.However,theseenterprisesshouldbeauditedonceandbyoneorganization.

Policy knowledge of respondents

Thepolicyknowledgeofenterpriseshasitsowncontributioninunderstandingtheirrightsandobligations.Thiscanhelpinmakingpublicservicedeliverysmoothandefficient.Because,itistheinformedenterprisecanaskandrespectitsownrightstoberespectedandcanrespectitsobligations.However,aswecanseefromtheChart4.1below,therespondents’knowledgeoninvestment,tradeandlandpolicyisnotsatisfactory.Outofthe161samplerespondentsonly71(44%),95(59%),71(44%)said as they have knowledgeon investment, trade and land policy, respectively.Thislowlevelofpolicyknowledgebyprivateenterprisesmayleadtodissatisfactionbypublicservicedelivery.

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44%59%

44%56%

41%56%

0%

20%

40%

60%

80%

Investment Trade Land

Chart 4.1: Policy Knowledge

Yes

No

One contributing factor for the low policy and legal knowledge of the private enterprises can be

the inaccessibility of legal and policy documents. That is; many legal and policy documents are

not easily accessible to users in different forms. According to our study 68% of the respondents

don’t have access to published legal and policy documents. In addition, government offices do

not publish and make accessible their manuals and directives in adequate manner to users.

Although the public offices try to improve the legal and policy knowledge of the private

enterprises by distributing brochure, training and discussions, they do not distribute policy and

legal documents to private enterprises.

Table 4.1: Policy related questions

Questions Response Yes No Total

Have you ever faced policy related problem/s? count 24 137 161 %age 15% 85% 100%

Do you have access to published documents count 51 110 161 %age 32% 68% 100%

Concerning policy related problems, 24(15%) of the respondents responded as they faced policy

related problems. Although this number is low, it can be an implication of the low policy

knowledge of the respondents. The response of the respondents is presented in Table 4.1 above.

2. Legal issues

Designing a good policy is not an achievement by itself. In addition to policy, it is necessary to

have rules and regulations that guide interactions of economic agents in the desired way.

Although there are many rules and regulations that guide our interactions, there are gaps in

designing and approving specific sector rules and regulations in Tigray region. As our FGD


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One contributing factor for the low policy and legal knowledge of the privateenterprisescanbetheinaccessibilityoflegalandpolicydocuments.Thatis;manylegal andpolicy documents arenot easily accessible to users in different forms.Accordingtoourstudy68%oftherespondentsdon’thaveaccesstopublishedlegalandpolicydocuments. Inaddition,governmentofficesdonotpublishandmakeaccessibletheirmanualsanddirectivesinadequatemannertousers.Althoughthepublicofficestrytoimprovethelegalandpolicyknowledgeoftheprivateenterprisesbydistributingbrochure,traininganddiscussions,theydonotdistributepolicyandlegaldocumentstoprivateenterprises.

Table4.1:Policyrelatedquestions


Have you ever faced policy related problem/s?count 24 137 161%age 15% 85% 100%

Do you have access to published documentscount 51 110 161%age 32% 68% 100%

Concerningpolicyrelatedproblems,24(15%)oftherespondentsrespondedastheyfacedpolicyrelatedproblems.Althoughthisnumberislow,itcanbeanimplicationofthelowpolicyknowledgeoftherespondents.TheresponseoftherespondentsispresentedinTable4.1above.

2. Legal issues

Designingagoodpolicyisnotanachievementbyitself.Inadditiontopolicy,it isnecessarytohaverulesandregulationsthatguideinteractionsofeconomicagentsin the desired way. Although there are many rules and regulations that guideour interactions, there are gaps in designing and approving specific sector rulesandregulationsinTigrayregion.AsourFGDindicated,stillthereisnohoneybeeprotectionruleinTigrayregion.Inaddition,thereisnoruleagainstillegalpracticeson honey products. These limitations negatively affect investment and honeyproduction in the region.There isalso limitation incommunicatingnewrules totheprivatesectorontime.Similarly,itisstatedthatthecriteriatogetagriculturallandforinvestmentarenotclear.Theotherproblemmentionedinrelationtoruralagriculturalinvestmentisthat,theruledoesnotpermittoformasharecompany.Inaddition,sincetheruledoesnotpermittorentrurallandforlongperiodoftime,itdiscouragesruralagriculturalinvestment.Therulesandcriteriadesignedtosupportinvestorsintheagriculturalsectorinruralareasarealsonationwide(uniformforthenation).Thatis;itsupportsforthosewhoinvestabove50hectares.Forexample:to


16

importavehicle,youhavetoinvestinmorethan50hectares.But,mostinvestorsinthissectorinTigrayregionhaveinvestedinlessthan50hectares.Asaresult,theinvestorsarenotbenefitingfromtheincentivesgivenforthesector.So,itrequiresregionspecificincentivepackageswhichcangowiththeregionspecificsituation.

Concerningurbanagriculture,thetimegiventouselandisveryshort.Inaddition,thereisnoguaranteetocontinueuntilthespecifiedusageperiod.Individualswhoinvestcanbedisplacedafterayearifthelandisrequiredforotherpurposes.

Inadditiontonon-existenceofspecificrulesandregulations,frequentchangesintheexistingrulesandregulationsisanotherprobleminTigrayregion.Thismakesfuture unpredictable and the private sector looses confidence on the rules andregulations.

Creatingconducivelegalandadministrativeenvironmentisoneimportanttooltoattractinvestmentandachieveeconomicgrowth.InTigrayregion,althoughmanyeffortsareundertaken,therearelegalandadministrativeproblems.Accordingtooursurvey(seeTable4.2),49%(79)ofsamplerespondentssaidasthelegalandadministrativeenvironmenttostartabusinessisnotconducive.

Table 4.2: Business Start-up


Is the legal procedure to start a business conducive?count 82 79 161%age 51% 49% 100%

Among these, long bureaucracy (requirement of many documents), high initialcapital requirement are the legal challenges that firms are facing to stat theirbusiness.Out of the 79 sample respondentswho said starting a business is notconducive, 58 (73%) said long bureaucracy as theirmain challenge. In addition,18samplerespondentssaidhighinitialcapitalrequirementaschallengetostartabusiness.

Theadministrativechallengesthatfirmsfaceduringestablishment(startupperiod)are maladministration, corruption and lack of coordination between concernedoffices. Out of these challenges, maladministration is their main problem (seeChart 4.2). Lack of coordination betweenmunicipality and development bank isalsoseriousproblem.Aftertheinvestorsreceivelandfromthemunicipality,theyhave to start construction quickly and accomplish their project as stated in theagreement. However, the investors do not get loan quickly to accomplish theirproject.Thedelayingettingloanfrombanks(mainlydevelopmentbankofEthiopia)leads to a total delay in the project progress. This delay in the project leads to some


17

disagreementswiththemunicipalitysincethelandisnotusedproperlyasstatedintheagreement. Inaddition,municipalitiesgive landto investorsbeforepayingcompensationtofarmers.Thisiscreatingdisagreementsanddelayininvestmentactivities.

Chart4.2:Challengesfacedduringestablishmentofafirm

Afterstartingabusinessandoperateintheeconomy,firmscanexitfromthemarket(sector in which they are participating in) when necessary. This process needsknowledgeonhowtoexit fromthebusiness (clothabusiness).Concerning this,mostofthesamplerespondents(74%)haveknowledgeonhowtoexit fromthebusiness(seeTable4.3).Butoutofthesamplerespondentswhohaveknowledgeonhowtoexitfromabusiness(119),60(50%)saiditisnoteasytoexitfromthebusiness. The repeatedly raised problem is delay in audit to get clearance.

Table 4.3: Business Exit


Do you have exit knowledge?count 119 42 161%age 74% 26% 100%

Is it easy to exit?count 59 60 119%age 50% 50% 100%

In addition to creating conducive environment to attract investments, it isnecessarytohaveataxrateandtaxsystemthatencouragesbusinessenterprisesandemployees. InEthiopia, the fundamental goalsof the tax systemare raisingrevenues,stimulatingeconomicgrowth/development,taxequityandmodernizingthe tax system and tax administration. However, the Ethiopian tax system andadministrationhasmanylimitationssuchasdiscriminationandweakadministrationoftaxcollectionpractices(Taddese,2010).

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Among these, long bureaucracy (requirement of many documents), high initial capital

requirement are the legal challenges that firms are facing to stat their business. Out of the 79

sample respondents who said starting a business is not conducive, 58 (73%) said long

bureaucracy as their main challenge. In addition, 18 sample respondents said high initial capital

requirement as challenge to start a business.

The administrative challenges that firms face during establishment (start up period) are

maladministration, corruption and lack of coordination between concerned offices. Out of these

challenges, maladministration is their main problem (see Chart 4.2). Lack of coordination

between municipality and development bank is also serious problem. After the investors receive

land from the municipality, they have to start construction quickly and accomplish their project

as stated in the agreement. However, the investors do not get loan quickly to accomplish their

project. The delay in getting loan from banks (mainly development bank of Ethiopia) leads to a

total delay in the project progress. This delay in the project leads to some disagreements with the

municipality since the land is not used properly as stated in the agreement. In addition,

municipalities give land to investors before paying compensation to farmers. This is creating

disagreements and delay in investment activities.

Chart 4.2: Challenges faced during establishment of a firm

Long bureaucracy

52%

High initial capital requirement

16%

Maladministration23%

Corruption5%

Other problem4%


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Accordingtothestudy,101(63%),55(34%),5(3%)respondentssaidthatthetaxrateisfair(medium),veryhighandverylowrespectively(seeTable4.4).Thedifferenceinresponsefromverylowtaxratetoveryhightaxratemakestheequityofthetaxsystemquestionable.

Table 4.4: Tax Rate

ResponseTax rate

count %ageVery low 5 3%

Fair 101 63%Very high 55 34%

Total 161 100%

3. Administrative issues

Tax administration

TheEthiopiantaxsystemhasfourfundamentalgoals.Theseare:raisingrevenues,stimulating economic growth/development, tax equity andmodernizing the taxsystemandtaxadministration.However,theEthiopiantaxsystemandadministrationhas many limitations such as discrimination and weak administration of taxcollectionpractices (Taddese,2010).Asa result, taxpayers facemanyproblems.Accordingtooursurvey,59outof161(36.6%)respondedastheyfacedtaxrelatedproblems.Theseincludehightaxation,subjectivityoftaxleveldetermination,notdetermining tax based on yearly revenue( small firms), unfair tax determinationduetoaffiliation,delayinaudit(ittakesmanyyears),absenceoftimelycorrectionfromtaxcollectionauthoritywhenmistakeshappen,notacceptinglegalreceiptsasanevidencefortaxdeterminationpurposeetc.Inaddition,theexistenceofVATregisteredandunregisteredandsincesomeoftheVATregistereddoesnot issuereceipts,thereisunfaircompetitionandunfairpractices.

WhenenterprisestaxcategorychangesfromAandBtocategoryC,thereisnocleardirectiveonassetvaluationofunsoldstocktodeterminetheleveloftax.

The issue that needs high concern is the readiness of concerned offices to givesolutiontoanycasethatcomestotheiroffice.Outofthe59businessenterpriseswhichfacedtaxrelatedproblems52(88%)submittedtheircasetoconcernedbodiesforasolution.However,only50%(26)oftheseenterprisesgotasolutiontotheircase. That is; half of the cases submitteddidnot get solutionby the concerned


19

bodies.This isveryhighnumber.Thissituationcanleadbusinessenterprisesnottosubmittheircase(12didnotsubmit)totheconcernedofficesformallytogetsolution.Rather,businessenterpriseswillbe forcedtosolve theirproblem inaninformalwaywhichcanalsoleadtohighcorruptionandotherproblems.Whenweseetheresponsivenessoftheconcernedbodiestothecasespresented,only65%(17)oftherespondentssaidastheygotquicksolutiontotheirproblem(seeTable4.5).

Table 4.5: Tax related problems

Response

Haveyoueverfacedtax

related problem

submittedtaxrelatedproblem

solutionfortaxrelatedproblem

quicksolutiontotaxrelated

problemcount %age count %age count %age count %age

Yes 59 36.6 52 88 26 50 17 65No 102 63.4 7 12 26 50 9 35

Total 161 100 59 100 52 100 26 100

Public service delivery

The Ethiopia government has been promoting civic engagement throughdecentralizationofauthoritytolowerlevelssoasaddresslocalneedseffectivelyandsituatingthepowerforpublicservicedeliveryclosertothepeople(UNDP,2014).Asweallknow,theprivatesectoractivitiescanbeinfluencedbythesituationofpublicservicedelivery.AlthoughreformssuchasBPRandBSCimplementedintheregiontoimprovetheservicedeliverysituation,stilltherearemanychallenges.Thatis;thereisstilllackofgoodgovernanceintheregion.Amongthe161samplerespondents25(16%),31(19%),70(43),30(19)and5(3%)saidtheservicedeliverysituationoftheregionveryweak,weak,medium,strongandverystrongrespectively.Thisindicatesthat,around35%(56)ofsamplerespondentsrankedtheservicedeliverybetweenveryweakandweak(Chart4.3).

Chart 4.3: Public Service delivery

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Table 4.5: Tax related problems

Response

Have you ever faced tax related problem

submitted tax related problem

solution for tax related problem

quick solution to tax related problem

count %age count %age count %age count %age Yes 59 36.6 52 88 26 50 17 65 No 102 63.4 7 12 26 50 9 35

Total 161 100 59 100 52 100 26 100

Public service delivery

The Ethiopia government has been promoting civic engagement through decentralization of

authority to lower levels so as address local needs effectively and situating the power for public

service delivery closer to the people (UNDP, 2014). As we all know, the private sector activities

can be influenced by the situation of public service delivery. Although reforms such as BPR and

BSC implemented in the region to improve the service delivery situation, still there are many

challenges. That is; there is still lack of good governance in the region. Among the 161 sample

respondents 25(16%), 31(19%), 70(43), 30(19) and 5(3%) said the service delivery situation of

the region very weak, weak, medium, strong and very strong respectively. This indicates that,

around 35% (56) of sample respondents ranked the service delivery between very weak and

weak (Chart 4.3).

Chart 4.3: Public Service delivery


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Inthisstudy,wehavetriedtoranktheservicedeliveryrelatedproblems.Theservicedelivery related problems included in this analysis are service delay, corruption,absenceofaccountability,absenceoffairness,weakadministrativesupport, longbureaucracy,weakgrievancehandlingandlackoftransparency.Todothisanalysis,the56respondents(whichrankedtheservicedeliveryasveryweakandweak)areaskedto rank theservicedelivery relatedproblems from1-8.Basedon this, thedataispresentedinTable3.6bellow.

Table 4.6: Service delivery related problem

Service delivery problem Response

Rank of the problem

1 2 3 4 5 6 7 8 Total

service delaycount 25 6 6 9 4 3 2 1 56

%age 45% 11% 11% 16% 7% 5% 4% 2% 100

corruptioncount 2 4 3 5 5 7 5 25 56

%age 4% 7% 5% 9% 9% 13% 9% 45% 100

absence of accountability

count 2 5 3 8 8 9 15 6 56

%age 4% 9% 5% 14% 14% 16% 27% 11% 100

absence of fairnesscount 4 2 5 3 8 13 15 6 56

%age 7% 4% 9% 5% 14% 23% 27% 11% 100

weakadministrativesupport

count 11 4 8 11 11 8 2 1 56

%age 20% 7% 14% 20% 20% 14% 4% 2% 100

long bureaucracycount 5 20 10 8 7 4 1 1 56

%age 9% 36% 18% 14% 13% 7% 2% 2% 100

weak grievance handling

count 0 5 17 5 7 6 11 5 56

%age 0% 9% 30% 9% 13% 11% 20% 9% 100

lack of transparencycount 7 10 4 7 6 6 5 11 56

%age 13% 18% 7% 13% 11% 11% 9% 20% 100

Based on the data collected, public service delay, long bureaucracy, weakadministrative support, lack of transparency, weak grievance handling, lack ofaccountability,lackoffairness,andcorruptionarerankedfrom1stto8threspectively.Althoughcorruptionisranked8thbasedonoursurveyquestionnairedata,ourFGDshows as there are still officeswhich have serious corruption problems such aslanddevelopmentandadministration,revenueandfinance.Lackofcoordinationbetweendifferentsectors,changingrulesfrequentlyandputtingpersonaldirectionsand decisions are also adversely affecting the service delivery situation in theregion.Theexamplesmentionedinthisregardare:restrictinginvestmentlicensesinsomeprojectssuchascorrugatediron,packedmineralwaterandflourfactories.


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Thereasonoftheofficials isthattheexistingprojectsaresufficientforthearea.However,productsofsuchfactoriescomefromotherareassuchasAddisAbabatofillthegapoftheseproductsinTigrayregion.

This shows that, although many reforms and efforts are undertaken, still theservicedelivery is not fast andeffectiveasdesired.Asour FGD, the reasons forthese problems are assigning incapable officers who cannot implement policiesandstrategiesproperly,assigningofficersandleaderswithoutmerit(profession),shortageofemployeesinthekeyserviceprovideroffices,givingmanyresponsibilitiesforasingleemployee,non-existenceofoneshopservice,repetitivemeetings,lackofpreparednessandwillingnesstosolvegrievances,lackofICT(network)usageinservicedelivery,followingbackwardprocedures,lackofregionalagent(branch)torenewPLClicensesandprocessandgotforeigncurrencyetc.

According toour surveyquestionnaire, the servicedeliveryproblemsare clearlypresentedinChart4.4below.

Chart 4.4: Rank of Public service delivery related problems

4.2 Anti-competitive PracticesTable4.7:Anti-competitivepractices

Responses

Anti-competitivepractices

count %age

Yes 78 48%No 83 52%

Total 161 100%

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examples mentioned in this regard are: restricting investment licenses in some projects such as

corrugated iron, packed mineral water and flour factories. The reason of the officials is that the

existing projects are sufficient for the area. However, products of such factories come from other

areas such as Addis Ababa to fill the gap of these products in Tigray region.

This shows that, although many reforms and efforts are undertaken, still the service delivery is

not fast and effective as desired. As our FGD, the reasons for these problems are assigning

incapable officers who cannot implement policies and strategies properly, assigning officers and

leaders without merit (profession), shortage of employees in the key service provider offices,

giving many responsibilities for a single employee, non-existence of one shop service, repetitive

meetings, lack of preparedness and willingness to solve grievances, lack of ICT (network) usage

in service delivery, following backward procedures, lack of regional agent(branch) to renew PLC

licenses and process and got foreign currency etc.

According to our survey questionnaire, the service delivery problems are clearly presented in

Chart 4.4 below.

Chart 4.4: Rank of Public service delivery related problems


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Inacompetitivemarket,theessenceofcompetitionentailsfirmsattempttogaincompetitiveadvantagesovertheirrivals.However,thereare incidentswhichcanlimit firms to gain competitive advantages in the market. Among these one isanticompetitivepractices.Itisawiderangeofbusinesspracticesinwhichafirmorgroupoffirmsmayengageinordertorestrict inter-firmcompetitiontomaintainorincreasetheirrelativemarketpositionandprofitswithoutnecessarilyprovidinggoods and services at a lower cost or of higher quality (OECD, 1993). It is alsodefinedasanypracticethathas,isintendedtohave,orislikelytohave,theeffectofrestricting,distortingorpreventingcompetition.Itcanbebusiness,governmentorotherbodies’practicesthatpreventorreducecompetitioninamarket.

The data obtained from survey and FGD showed as there are anti-competitivepracticesinTigrayregion.Abuseofdominantpositionisthemostanti-competitivepracticementionedbyrespondents(seeTable4.7and4.8).Thatis;50respondents(64%) indicated as abuse of dominant position is the main anti-competitiveproblemtheyencountered (SeeTable4.7).InEthiopia,anti-competitivepracticesareprohibitedactivitiesandanabuseofmarketdominanceisalsodeemedasanti-competitivepractices(TradeCompetitionandConsumerProtectionProclamationNo.813/2013,Art.5).Notonly inEthiopiaeven inmanycountriesof theworldareanti-competitivepracticesprohibitedbylaw.Thenanypracticethataimedateliminating competitors through differentmethodswas considered as an unfairpractice. An abuse of market dominance may include the following activities:requiring that buyers purchase all units of a particular product only from thedominant company (exclusive purchasing); setting prices at a loss-making level(predation);refusingtosupplyinputindispensableforcompetitioninanancillarymarket;chargingexcessiveprices.

DataobtainedfromFGDandinterviewparticipantsindicatedtwoanti-competitivepractices they encountered. These are exclusive purchasing and illegal tradepractices(underinvoice,smugglingetc.).Thefirstproblemismainlypracticedbypublicsectororganizations.Thismeans,governmentpurchasesmainlymadefavorforfewfirms.Accordingtothoseparticipantstheproblemisnotemanatedfromthepurchasingmanualratheritcamefrommalpracticesofpurchasingpersonnel.They abuse the purchasing manual and systematically restrict or gave unequalchanceforfirms.Theotherproblemtheyraisedisillegaltradepracticeparticularlyproblemcamefromthosetraderswhoimportgoodsfromabroad(underinvoice,smuggling).Accordingtothoseparticipantsbelief,theconcernedgovernmentbody(customauthority)knewtheproblemandtheyalsoreportedthisproblemintheirforum.Butstilltheproblemisnotavoided.Insteadtheproblemisaggravatingandadverselyaffectingtheircompetitiveness.


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Table4.8:Anti-competitiverelatedproblems

Anti-competitiverelatedpracticesResponse

Yes No Total

Cartelscount 18 60 78%age 23% 77% 100%

Abuseofdominantpositioncount 50 28 78%age 64% 36% 100%

Vertical/horizontalrestrictionsofcompetition

count 20 58 78%age 26% 74% 100%

Anti-competitivemergers&acquisitions

count 26 52 78%age 33% 67% 100%

Stateinterventioncount 15 63 78%age 19% 81% 100%

Othercount 23 55 78%age 30% 70% 100%

Among those who feel as there are anti-competitive practices 56 (72%) haveknowledgeabout the legal remedy thatmightbe takenagainst anti-competitivepractices;However, only 20 (36%) of themhave submitted the problems to theconcernedbodyforsolutionandonly2(10%)oftherespondentshavesatisfiedbythegivensolution.

Regardingthesubmissionofcomplaintsthefindingofthisstudyisconsistentwithpastfindings.Researchshowedthatonlyfewi.e.,5–10percentcustomersmadetocomplain.Inthisregard,thebadthingisnotonlywhytheywon’tcomplaintratherthey spread negativeword ofmouth about their experience tomany people (itestimatesfrom9–15people).

Table4.9:Competitivenessofprivatesector

anti-competitivepractices

Knowledge on legal remedy

Submit the case forsolution

Satisfiedbysolution

count %age count %age count %age count %ageYes 78 48.4% 56 71.8% 20 35.7% 2 10.0%No 83 51.6% 22 28.2% 36 64.3% 18 90.0%

Total 161 100% 78 100.0% 56 100% 20 100%


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Whenweseetheanti-competitivepracticesintermsofbusinesssector(asdepictedonChart 4.5), anti-competitivepractices is indicatedhighly in Leather& Textile,Metal&WoodworksandServicesectorsrespectively.

Chart4.5:Anti-competitivepracticesintermsofbusinesssector

Discrimination in the access to state aid/support

Anotherfactorthatmighthindercompetitivenessofprivatesectorisdiscriminationintheaccesstostateaid/support.This isbecause it is incontrasttocompetitivemarket idea, compete on fair grounds, if the government aid/support privatesectors,itmakesfavor(givecompetitiveadvantages)foronegroupanddrainthecompetitivenessofothers.Bydefinition,stateaidsandsupportrepresentasignificantamountofpublicfundsandgovernmentsgrantsubsidiesinamultiplicityofwaystoprotecttheinterestoffirmsandconsumers(OECD,2010).Butifthegovernmentaid/subsidies/supportprivatesectorsunfairly, itdeemedasdiscrimination in theaccesstostateaid/supports. Inthisstudy,respondentsaskedtoanswerwhetherthere is discrimination in the access to state aid/subsidies/support or not. As aresult,30%oftherespondentssaidasthereisdiscriminationinstateaid/support(seeTable4.10).

Table4.10:Discriminationintheaccesstostateaid/support

Response Discriminationwithstateaid

count %ageYes 48 30%No 113 70%

Total 161 100%Outofthe48respondentswhosaidthereisdiscrimination,26(54%)ofthemsaiddiscriminationin“Provisionofworkingplace”astheirmainproblem.Nexttothis,“Supportgiventoparticularfirms”,and“Accesstofinance”arecriticalproblems.

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Regarding the submission of complaints the finding of this study is consistent with past findings.

Research showed that only few i.e., 5 – 10 percent customers made to complain. In this regard,

the bad thing is not only why they won’t complaint rather they spread negative word of mouth

about their experience to many people (it estimates from 9 – 15 people).

Table 4.9: Competitiveness of private sector

anti-competitive practices

Knowledge on legal remedy

Submit the case for solution

Satisfied by solution

count %age count %age count %age count %age Yes 78 48.4% 56 71.8% 20 35.7% 2 10.0% No 83 51.6% 22 28.2% 36 64.3% 18 90.0%

Total 161 100% 78 100.0% 56 100% 20 100%

When we see the anti-competitive practices in terms of business sector (as depicted on Chart

4.5), anti-competitive practices is indicated highly in Leather & Textile, Metal & Wood works

and Service sectors respectively.

Chart 4.5: Anti-competitive practices in terms of business sector

Discrimination in the access to state aid/support Another factor that might hinder competitiveness of private sector is discrimination in the access

to state aid/support. This is because it is in contrast to competitive market idea, compete on fair

grounds, if the government aid/support private sectors, it makes favor (give competitive

advantages) for one group and drain the competitiveness of others. By definition, state aids and

support represent a significant amount of public funds and governments grant subsidies in a


25

AnotherproblemmentionedbyFGDparticipantsisthatmajorityoftherecipients(beneficiaries)of stateaids/supportsare thoseprivate investorswhoarenamedas “developmental investors”. Thus, FGD participants feel it is susceptible ofsignificantlydistortingcompetition.

Chart4.6:DiscriminationonStateaid/support

Whenweseediscriminationonstateaidsintermsofbusinesssector(Chart4.7),thefirstthreesectorswhofeelthereishighdiscriminationwithstateaid/supportareUrban-agriculture(46.7%),MetalandWoodworks(35.5%)andManufacturing(33.3%),respectively.

Chart4.7:DiscriminationonStateaids/supportsintermsofsector

4.3 InfrastructureInfrastructure is crucial element to realize economic development and attractinvestmentandcreatecompetitivenessofprivatesector(BOPF,2010).InEthiopia,infrastructurehasapositivecontributiontoannualpercapitaGDPgrowth.Thus,Ethiopia has made significant progress in improving infrastructural facilities byallocatinglargeportionofitsannualbudgetrecently.But,infrastructuralproblemsare still negativelyaffecting the competitivenessofprivate sector in the country(WB,2010).

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multiplicity of ways to protect the interest of firms and consumers (OECD, 2010).But if the

government aid/subsidies/support private sectors unfairly, it deemed as discrimination in the

access to state aid/supports. In this study, respondents asked to answer whether there is

discrimination in the access to state aid/subsidies/support or not. As a result, 30% of the

respondents said as there is discrimination in state aid/support (see Table 4.10).

Table 4.10: Discrimination in the access to state aid/support

Response Discrimination with state aid

count %age Yes 48 30% No 113 70%

Total 161 100%

Out of the 48 respondents who said there is discrimination, 26 (54%) of them said discrimination

in “Provision of working place” as their main problem. Next to this, “Support given to particular

firms”, and “Access to finance” are critical problems. Another problem mentioned by FGD

participants is that majority of the recipients (beneficiaries) of state aids/supports are those

private investors who are named as “developmental investors”. Thus, FGD participants feel it is

susceptible of significantly distorting competition.

Chart 4.6: Discrimination on State aid/support

39.6%

22.9%

33.3%

10.4%

54.2%

10.4%

Support given to particular firms

Access to market

Access to financing

Tax exemption/holiday

Provision of working place

Other

Discrimination on State aids/supports

26

When we see discrimination on state aids in terms of business sector (Chart 4.7), the first three

sectors who feel there is high discrimination with state aid/support are Urban-agriculture

(46.7%), Metal and Wood works (35.5%) and Manufacturing (33.3%), respectively.

Chart 4.7: Discrimination on State aids/supports in terms of sector

71.4%

0.0%

57.1%

33.3%

70.8%

80.0%

66.7%

Metal and Wood work

Agro-pocessing

Urban Agriculture

Manufacturing

Service

Leather and Textile

Construction

Discrimination on State aids/supports in terms of sector

4.3 Infrastructure

Infrastructure is crucial element to realize economic development and attract investment and

create competitiveness of private sector (BOPF, 2010). In Ethiopia, infrastructure has a positive

contribution to annual per capita GDP growth. Thus, Ethiopia has made significant progress in

improving infrastructural facilities by allocating large portion of its annual budget recently. But,

infrastructural problems are still negatively affecting the competitiveness of private sector in the

country (WB, 2010).

In case of Tigray region, efforts have been made to improve infrastructural facilities of the region

by the federal and regional governments. However, the region has still many infrastructural

problems. According to Gizachew (2017) access to infrastructural facilities, investment

incentives, and few investment areas have significant negative impact on investment in

manufacturing sector in Tigray region. According to our survey, 58.4% (94) of our respondents

face different infrastructural problems (See Table 4.11).


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IncaseofTigrayregion,effortshavebeenmadetoimproveinfrastructuralfacilitiesof the regionby the federaland regionalgovernments.However, the regionhasstill many infrastructural problems. According to Gizachew (2017) access toinfrastructural facilities, investment incentives, and few investment areas havesignificantnegativeimpactoninvestmentinmanufacturingsectorinTigrayregion.Accordingtooursurvey,58.4%(94)ofourrespondentsfacedifferentinfrastructuralproblems(SeeTable4.11).

Table 4.11: Existence of Infrastructural problem

Do you have infrastructural problem?Response count %age

Yes 94 58.4No 67 41.6

Total 161 100

The infrastructural problems are: shortage of transformer, weak transformercapacity,lackofroad,lackofelectricity,lackofwater,powerinterruption,watershortage, lackofmarketandexhibitioncenters, lackoffinancial institutions, lackoftransportationandtelecommunicationfacility(mainlyinterruption).Inaddition,thereisdrainageproblemwhichaffectsbusinessactivities.Outoftheseproblems,powerinterruptions,watershortage,lackofmarketandexhibitioncentersarethemainproblems.SuchinfrastructuralproblemsareveryseriousinareasselectedasindustrialzonesandareaspreparedforMSEsworkingpremises.Theseproblemsarecreatingdelayinimplementationofprojectsandadverselyaffectingprofitabilityofprivateenterprises.ThedataobtainedfromthesurveyispresentedinTable4.12below.


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Table 4.12: What Infrastructure problem you have faced?

Response Yes No Total

count %age count %age countwatersupply 45 48% 49 52% 94Power 75 80% 19 20% 94Road 14 15% 80 85% 94Transportationfacility 8 9% 86 91% 94Dry port 0 0% 94 100% 94Telecommunication 2 2% 92 98% 94Financialinstitutions 12 13% 82 87% 94Marketcenter 21 22% 73 78% 94Exhibitioncenter 16 17% 78 83% 94Other infrastructural problems 2 2% 92 98% 94

4.4 Access to Finance, Foreign Currency and Land

1. Access to Finance

Table 4.13: Loan related issues

S. No. Questions

Yes No Totalcount %age count %age count

1 Haveyourequestedloan? 98 60.9% 63 39.1% 1612 Haveyougotloan? 74 75.5% 24 24.5% 983 Doyoubelievetheloan

adequateenough?41 55.4% 33 44.6% 74

4 Isthecollateralrequestedreasonable?

57 77.0% 17 23.0% 74

5 Doyoubelievetheloancriteriaworkable?

45 60.8% 29 39.2% 74

AsindicatedintheTableabove,fromthetotal161respondents98(61%)ofthemsaidastheyrequestedloanfromfinancialinstitutionsand74(76%)ofthemgotit.Againfromthose74borrowers55%ofthemreportedthemoneytheygotisadequatefortheirbusiness,77%borrowersfeeltherequestedcollateralisreasonableand61%ofthemalsofeelthe loancriteriawasworkable.Conversely,dataobtainedfromFGDand interviewparticipants indicatedaccess tofinance is themainchallengethey encountered. According to those participants their businesses have been


28

sufferedby lackof finance. To get bank loan theyhavewaited too longperiodsespeciallyinsomebanksittooktwo-threeyears.Evendataobtainedbyconductinginterviewforchamberofcommerceandtheirboardmembersattestedcurrentlymanybusinesssocietieshavesufferedbylackofsufficientbankloan.Moreover,theamountofloanapprovedbythesebanksisnotsufficientenoughandcomparedwiththeloantheygotthecollateralisnotfair.Accordingtotheparticipants,theproblemisworseninginmanufacturingsector.Duetolackofworkingcapitaltheycouldnotefficientlyusetheircapacity.Someoftherespondentssaidastheyareusingonly10%oftheircapacityandtheywereidleformorethansixmonthsandthisenforcedthemtodecreasetheiremployeesby50%.Therespondentsmentionedsomeofthe causes of the problem. These are: under valuationof asset (collateral),; theprocedureoftheloanisnotencouragingmanufacturingsectorsoritmadefavorforservicesector;toolongbureaucracy;corruptionisheadacheformanyborrowers;someprivatebanksarenotwillingtograntloaninTigrayregioneveniftheyearnhighsavingdepositfromthisregion;somebanksarenotservingallsectorsfairly.Thismeans, theypreferredto lendonlyshort-termloanrequests likeagriculture(maximumofoneyear)andtheylendustheremainingbalances;someemployeesofthebanksarenotethical(withoutgettingconsentfromtheircustomers,theysharetheirbusinessideasandknowledgetothirdparty).

The study tried to identify the reason behind these two different results. Asa result, it identified the following points as the main reason behind differentresultsobtainedfromquestionnaireinstrumentandfrombothFGDandinterviewinstruments.Thesearethesizeofsamplebusinessrespondentsandtheamountofloantheyrequested.Thismeans,majorityofthesamplerespondentsinthesurveyweremicroandsmallenterpriseswhile inthecaseofFGDtheparticipantswereoperatorsofmediumandlargeenterprises.Thus,formicroandsmallenterprisesgettingtherequiredloanisnotassuchdifficult.Becausetheamountofloantheyrequestedisapprovedinthenearbybanks.Whereasforthosemediumandlargeenterprises,gettingbank loan/finance isverydifficult.Becauseone thing is theyrequestedhighamountofmoneyandthismoneyisalsoapprovedatheadofficenotatbranchlevel.

Regardingtheinterestrate,53%ofrespondentsfeelashigh.Inaddition,64%oftherespondentssaidtherepaymentperiodoftheloanasitismedium(Chart4.8and4.9).


29

2. Access to foreign currency

Concerningforeigncurrency,wehavenotgotsufficientdatathroughquestionnaire.Becausemostoftherespondentsdidnotengageinexport–importrelatedactivities.So,tofillthegapthestudyusedFGDandinterviewinstruments.Asaresult,thefollowing points have been obtained. Currently, the main challenge for manybusinesssocieties,especiallyforthosewhoareengagedinimport-exportrelatedbusiness is lack of foreign currency. In addition to shortage of foreign currency,businessenterpriseshavetogotoAddisAbabatoprocessapprovaloftheforeigncurrencytheyrequested.Thispushedbusinesssocietiestoincurunnecessarycostsandthisisalsoadverselyaffectingexportablecommodities’pricecompetitiveness.

Table 4.14: Access to Foreign Currency


Have you requested foreign currency?count 14 147 161

%age 9% 91% 100%

Have you got as you requested?count 8 6 14

%age 57% 43% 100%

Istheamountofforeigncurrencysufficientenough?count 4 4 8

%age 50% 50% 100%

Have you ever faced problem(s) in processing LC/CAD/TT?count 2 6 8

%age 25% 75% 100%

3. Access to land

Landisoneimportantfactorofproductionformanybusinesses.Accordingtothisstudy,businessenterprisesareworkinginrent(53%),government/Statelandortheso-called“shade(25%)andownland(25%)(seeChart4.10).Outofthose25%ofrespondentswhoreportedastheyworkintheir“ownland”,12(40%)respondentsgotitwithleaseagreementandtheirfeelingtowardsleasepriceis33%high,33%mediumand33%low(seeChart4.11).

29

like agriculture (maximum of one year) and they lend us the remaining balances; some

employees of the banks are not ethical ( without getting consent from their customers, they share

their business ideas and knowledge to third party).

The study tried to identify the reason behind these two different results. As a result, it identified

the following points as the main reason behind different results obtained from questionnaire

instrument and from both FGD and interview instruments. These are the size of sample business

respondents and the amount of loan they requested. This means, majority of the sample

respondents in the survey were micro and small enterprises while in the case of FGD the

participants were operators of medium and large enterprises. Thus, for micro and small

enterprises getting the required loan is not as such difficult. Because the amount of loan they

requested is approved in the nearby banks. Whereas for those medium and large enterprises,

getting bank loan/finance is very difficult. Because one thing is they requested high amount of

money and this money is also approved at head office not at branch level.

Regarding the interest rate, 53% of respondents feel as high. In addition, 64% of the respondents

said the repayment period of the loan as it is medium (Chart 4.8 and 4.9).

53%

43%

4%

Chart 4.8: Interest Rate

HighMediumLow

9%

64%

27%

Chart 4.9: Repayment Periods

LongMediumShort


Concerning foreign currency, we have not got sufficient data through questionnaire. Because

most of the respondents did not engage in export – import related activities. So, to fill the gap the

study used FGD and interview instruments. As a result, the following points have been obtained.

Currently, the main challenge for many business societies, especially for those who are engaged

29

like agriculture (maximum of one year) and they lend us the remaining balances; some

employees of the banks are not ethical ( without getting consent from their customers, they share

their business ideas and knowledge to third party).

The study tried to identify the reason behind these two different results. As a result, it identified

the following points as the main reason behind different results obtained from questionnaire

instrument and from both FGD and interview instruments. These are the size of sample business

respondents and the amount of loan they requested. This means, majority of the sample

respondents in the survey were micro and small enterprises while in the case of FGD the

participants were operators of medium and large enterprises. Thus, for micro and small

enterprises getting the required loan is not as such difficult. Because the amount of loan they

requested is approved in the nearby banks. Whereas for those medium and large enterprises,

getting bank loan/finance is very difficult. Because one thing is they requested high amount of

money and this money is also approved at head office not at branch level.

Regarding the interest rate, 53% of respondents feel as high. In addition, 64% of the respondents

said the repayment period of the loan as it is medium (Chart 4.8 and 4.9).

53%

43%

4%

Chart 4.8: Interest Rate

HighMediumLow

9%

64%

27%

Chart 4.9: Repayment Periods

LongMediumShort


Concerning foreign currency, we have not got sufficient data through questionnaire. Because

most of the respondents did not engage in export – import related activities. So, to fill the gap the

study used FGD and interview instruments. As a result, the following points have been obtained.

Currently, the main challenge for many business societies, especially for those who are engaged


30

Chart 4.10: Form of working place ownership Chart 4.11: Land lease rate (Price)

OtherpointsobtainedduringFGDabout landare; (1) there ishighgapbetweendemandandsupplyofland.Andthispushesthemarketerstobid-uptheleasepriceofthe landaboveitsrealvalue.Asaresultofthismanypeoplecouldnotaffordthishighleaseprice.Insteadtheychoosetorentthecommercialplaceswithhighrent. (2).Problemsrelatingtoregulating land.Accordingtodataobtained in thestudyand ithasalsoconfirmedby landadministrationofMekellecity, therearemanyplacesgrantedfor investorsbutnotyetusedformorethantenyears. (3).There ishigh impartiality in transferring (distributing) thegovernment shades tobusinessenterprises.(4).Thereisdelayintransferringlandtoinvestors.Thelandadministrationofficeandinvestmentbureaucouldnotkeeptheirstandardperiod(promisedtime) to transfer land to investors. Specifically, there are caseswhichtookmorethantwoyearseveniftheinvestorsfulfilledalloftherequirements.Forexample,datacollected inMekelleandAdwashowedthat theydepositedmuchmoremoneywhich is counted inmillions formany yearswhilewaiting land forconstructingmarket centers.Moreover, in comparedwithworkingplace, lackofmarketplacesarethebasicproblemsthebusinesssocietiesencountered.

4.5 Export – Import related issuesExport – import has indispensable role in the economic development of onecountryandalsoitcanberouteforthesuccessofbusinessfirms.Butexport-importorientedbusinesses found inTigray regionhavebeenharmedbymanybarriers.DataobtainedfromFGDandsurveyontheseissuesissummarizedasfollow.

ForalmostallparticipantsofFGDandsurveyrespondents,lackofforeigncurrencyis their main headache. Due to lack of foreign currency they could not run their businesses;evensomecompaniesare idle foraroundsixmonthsandothersarealsoworkingbelowtheircapacity.

The other problem they faced is related to the process of foreign currency. The National Bank of Ethiopia pursued a centralized system and this enforced thebusinesssocietiestoincurunnecessarycosts.

30

in import-export related business is lack of foreign currency. In addition to shortage of foreign

currency, business enterprises have to go to Addis Ababa to process approval of the foreign

currency they requested. This pushed business societies to incur unnecessary costs and this is

also adversely affecting exportable commodities’ price competitiveness.



Have you requested foreign currency? count 14 147 161

%age 9% 91% 100%

Have you got as you requested? count 8 6 14

%age 57% 43% 100%

Is the amount of foreign currency sufficient enough? count 4 4 8

%age 50% 50% 100%

Have you ever faced problem(s) in processing LC/CAD/TT? count 2 6 8

%age 25% 75% 100%

3. Access to land Land is one important factor of production for many businesses. According to this study,

business enterprises are working in rent (53%), government/State land or the so-called “shade

(25%) and own land (25%) (see Chart 4.10). Out of those 25% of respondents who reported as

they work in their “own land”, 12 (40%) respondents got it with lease agreement and their

feeling towards lease price is 33% high, 33% medium and 33% low (see Chart 4.11).


19%25%

53%

3%0%

10%20%30%40%50%60%

Own State land(Shade)

Rent Other

34%

33%

33% LowMediumHigh

30

in import-export related business is lack of foreign currency. In addition to shortage of foreign

currency, business enterprises have to go to Addis Ababa to process approval of the foreign

currency they requested. This pushed business societies to incur unnecessary costs and this is

also adversely affecting exportable commodities’ price competitiveness.



Have you requested foreign currency? count 14 147 161

%age 9% 91% 100%

Have you got as you requested? count 8 6 14

%age 57% 43% 100%

Is the amount of foreign currency sufficient enough? count 4 4 8

%age 50% 50% 100%

Have you ever faced problem(s) in processing LC/CAD/TT? count 2 6 8

%age 25% 75% 100%

3. Access to land Land is one important factor of production for many businesses. According to this study,

business enterprises are working in rent (53%), government/State land or the so-called “shade

(25%) and own land (25%) (see Chart 4.10). Out of those 25% of respondents who reported as

they work in their “own land”, 12 (40%) respondents got it with lease agreement and their

feeling towards lease price is 33% high, 33% medium and 33% low (see Chart 4.11).


19%25%

53%

3%0%

10%20%30%40%50%60%

Own State land(Shade)

Rent Other

34%

33%

33% LowMediumHigh


31

Despite the lack of foreign currency as a nation, its distribution is also anotherproblem they encountered. According to those respondents, banks gave foreigncurrencybasedontheiraffiliationwiththecustomersorotherinformalrelations.

EthiopianbusinessenterprisesarealsoforcedtouseEthiopianShippingLine.Butcost of Ethiopian Shipping Line is high compared to other alternatives and thismakesEthiopianbusinessenterpriseslesscompetitive.

Another notable point that many participants of FGD raised is illegal trade,particularly in relation to those goods imported as under invoice. According tothoseparticipants,theproblemisknownbytheconcernedgovernmentbodiesbutthegovernmentisnotcontrollingitandthat’swhytheproblemhasbeenincreasedfrom time to time. As participants said, some employees of custom authorityencourageillegalpractice.

PartialityincustomprocedureisalsoanotherpointraisedduringFGD.Particularly,indryport inspection, all businesses containersarenot fairly inspected. Insteademployeesofthecustomauthorityusetheso-called“Green–and–Red”approach.

4.6 Regional business Agenda-Priorities1. Longbureaucracy

2. Publicservicedelay

3. Power- interruption, low capacity of transformer, inaccessibility of theinfrastructure

4. Land-shortageinsupply

5. Shortageofforeigncurrency

6. Shortageoffinancialloan

7. Taxauditdelay

8. Governmentpurchaseandbid–lackoftransparencyandaccountability

9. VATregistrationbasedonsalesturnover-creatingunfaircompetition

10. Illegaltrade-underinvoiceandsmuggling

11.Centralized system – in processing foreign currency request and approval,certification,shippingetc.

12. Inaccessibilityofpublications-policy,directivesandmanuals


32

Table4.15:Mainproblemsidentifiedintheselectedurbanareas

Location Main problems

Mekelle

Startingabusinessisnotconducive

Taxrelatedproblems

Infrastructuralproblem

Powerproblem

Shire

Weakservicedelivery

Infrastructuralproblem

Powerproblem

Illegaltrade

Axum Infrastructuralproblem

Powerproblem

Adigrat


Weakservicedelivery

Workingplaceisnotconducive

Loanaccessproblem

Wukro

Weakservicedelivery

Powerproblem


Lackofworkingplace

Alamata

Landsupplyproblem

Taxrelatedproblems

Loanaccessproblem

Illegaltrade

Adwa


Taxrelatedproblems


Loanaccessproblem


33

5. Conclusions and Recommendations5.1. Conclusion Fromthefindingofthisstudytheresearchershaveconcludedthefollowingpoints.

• Availabilityofpolicypublicationoftheregionisinsufficientandthishamperspolicyknowledgeofbusinessenterprisesoftheregion.

• Although there are many rules and regulations that guide the businessinteractions, the study indicated there are gaps in designing andapprovingspecificsectorrulesandregulationsinregion.FrequentchangesintheexistingrulesandregulationsarealsoanothernotableprobleminTigrayregion.Thus,all these limitations negatively affect investment and productivity of theregion.

• Longbureaucracy,maladministrationandtax relatedproblemsarestill corechallengesformanybusinessenterprises inTigray.Asaresult, thebusinesssocietiescouldnotsatisfiedbytheexistingadministrationsystem.

• InTigrayregionseveralbusinessenterprisesencounteredproblemsbecauseofpoorpublicservicedeliveryandlackofgoodgovernance.Asaresultofthistheregioncouldnotgrowitsinvestmentasexpected.

• Lacksofenergyandhighpowerinterruptionaswellaslackofwatersupplyarethe main infrastructure problems many business enterprises encountered. As aresulttheylostmuchmorebusinessopportunities.

• Developingand transition-economy-basedbusinessesand theirassociationsplayacrucialroleincreatingafairercompetitiveenvironmentsolongasthebusinessenvironmentisconducive.Asmentioninthestudy,anti-competitivepracticesareprobleminwhichthecurrentbusinessenvironmentencountered.

• Formany business enterprises lack of finance, high interest rate and shortrepaymentperiodsarethemainproblemstheyencountered.Hence,theyareidleforlongperiodandproducedsignificantlybelowtheircapacity.

• Shortageofforeigncurrencyandlandaswellastheirmanagementsarethemain headache for many business enterprises in the Tigray region. So many businessenterprisescouldnotdotheirbusinessoperationsproperly.


34

• Even if export – import business activities have significant contribution incountry’seconomicgrowth,becauseoflackofforeigncurrency,illegaltradeandproblemsrelatedtocustomprocedures,businessenterprisesoftheregionarelaggingbehindtheirrivalry.

5.2. RecommendationBased on the findings of this study, the following policy recommendations areforwardedsoastoimprovetheinvestmentclimateoftheregion.

Publicofficesshouldpublishpolicyandlegaldocumentsanddistributetotheprivateenterprisessoastoimprovetheirpolicyknowledgeindifferentways

Sector specific rules such as honeybeeprotection should bedesigned andapprovedontimesoastoincreaseproductionandreduceillegalpractices

Thenational incentivepackagesgivenforinvestorsintheagriculturalsectorshouldconsiderregionalconditionssoastomakeitmoreinclusive

RegistrationtoVATshouldbebasedonproductorservicetypeinsteadofsalesturnover.

Businessenterprisesshouldnotbeliabletotaxpaymentdefectscreatedbyindependentauditors.Theaccountabilityshouldbegiventotheindependentauditor.

Privateenterprisesshouldgetfastauditserviceandshouldbeauditedyearly

Theconcernedbodyshoulddesigncleardirectiveonvaluationofunsoldstockthatcanhelpprocessoftaxdetermination

Public offices should improve their service delivery system by assigningemployees based on merit, assuring accountability, using necessary ICTinfrastructure and reducing unnecessary procedures

Publicoffices should strengthen their coordinationandshould startmakingaccountableforthoseofficeswhichfailtocoordinate

Thegovernmentshouldfulfillnecessaryinfrastructuresspeciallyintheareasselectedasindustrialzonesbeforegivingthelandforinvestors

TheEthiopianElectricPowerServiceshouldundertakereformsoastoimproveits servicedeliveryandaccountability. It shouldbeequippedwithsufficientskilledandethicalworkers,necessarytechnologyandshouldhaveconducivestructures.


35

Evenifallegationsofanti-competitivepracticesneedtobegivensolutiononacase-by-casebasis,asageneralsolutionthegovernmentshouldworkmorein developing the business societies’ awareness towards anti-competitivepractices;itshouldalsocombattheproblembystrengthenitsrule.Totackleproblems relatingwith thecaseofanti-competitivepractices indistributionsuchasprovisionofworkingplace,monopoly,unfairdistributionofbasicgoods(statesubsidiescommodities)etc.,thegovernmentshouldseeitssystemandmarket channels again.

To solve financial related problems, it is better to revise the existing loancriteria.Thismeansinsteadfinancialinstitutionsusedriggedloancriteriaforinstanceinthecaseofcollateral,theyshouldbeflexible.Forexample,forthoseentrepreneurswhodonot have collateral but havebest and viable project(business) ideas, thegovernment shouldarrange special loan likeaccess tofundwithoutcollateraloronbehalfofthemprovideguaranteearrangementsto bank liability.

Regarding solutions for foreign currency related problems, the followingpointsare recommended.One, theexistingpracticeany foreigncurrency isapprovedbynationalbankofEthiopiaatAddis.Butasstatedinthestudyithasadverselyaffectthecompetitivenessofexportcommodities’pricesoasasolutionit’sbettertodelegatestate-ownedbandslikeDevelopmentbankofEthiopiaorCommercialBankofEthiopiaatleastatregionallevel.Second,the currency approval procedure like list of sectors or items given priority,thequeuingnumberofcustomers,theaveragetimetakentoallowcurrency,amountapprovedetc.shouldbetransparentforcustomers.

To compact access to land related problems one thing is the regional government should give attention for land utilization. For instance, indevelopment of working places for business sectors, it’s better to developvertically instead of horizontal expansion. Second, the government shouldsufficientlyempoweritslandadministrationunit(office)totakeactionagainstthoseinvestorswhodidnotusethelandforlongperiods.Third,asindicatedinthestudy,thelandleasepricehasbeenincreasingfromtimetotimeandthisalsoaffectscompetitivenessoffirms.Thus,it’sbettertoevaluatetheexistinglandleasepolicy.Lackoffairnesswithrespecttoprovisionofworkingplaceisanothercoreproblemraisedbyrespondents.Sotosolvethisproblem,theconcernedbodyshoulddevelopclearcriteriaandactaccordingly.Moreover,itshould also backed by transparency and accountability.


36

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PrivateInvestmentinTigray,NorthernEthiopia:ChallengesandOpportunitiesInTheCaseOfManufacturingSector,InternationalJournalofCurrentResearch:Vol.7,Issue,01,pp.12210-12217,January,2015

− BureauofPlanandFinance(2010):TigrayRegionalStateFiveYears(2010/11-2014/15)Growth&TransformationPlan,September,2003E.C,Mekelle

− CSA,2007,PopulationAndHousingCensusofEthiopia,AddisAbaba

− EIC,nodate,InvestmentOpportunities&PoliciesinEthiopia,AddisAbaba

− FDREInvestmentProclamationNo.769/2012”.FederalNegaritGazeta

− Gizachew Yirtaw Gebrewubet (2017), An Analysis of the Determinants ofPrivate Investment in the Manufacturing Sector: The Case of the State ofTigray,Ethiopia-UNISA

− HailemeskelAbebe,2001:EthiopianEconomicPolicy:contentsanddirections,Ethiopianeconomicsassociation,AddisAbaba,Ethiopia

− KirubaJeyaseeliandBenjaminLevi(2007).MarketEntryStrategiesofForeignTelecom Companies in India. Publisher Deutscher Universitats-Verlag.PublicationCity/CountryWiesbaden,Germany.

− OrganizationforEconomicCo-operationandDevelopment(OECD).May2011.Global Forum on Competition; Roundtable on Competition, State Aids andSubsidies.DAF/COMP/GF(2010)5

− Taddese Lencho Gemechu,2014, The Ethiopian Income Tax System: Policy,Design And Practice PhdDissertation, University of Alabama TUSCALOOSA,ALABAMA

− The International Trade Centre (ITC). (2012). Combating Anti-competitivePractices,AGuideforDevelopingEconomyExporters.P249.E/DCP/BTP/12-IIIISBN978-92-9137-407-6UnitedNationsSalesNo.E.12.III.T.4. ITC,PalaisdesNations,1211Geneva10,Switzerland(www.intracen.org).

− UNDP (2014), Civic Engagement for Eff¬ective Service Delivery in Ethiopia:Tools,OpportunitiesandChallenges:WorkingPaperNo.2

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