If two words could summarize typical challenges of the Ethiopian economic landscape, forex shortage would do it. And if two words could encapsulate expert recommendations to alleviate the long-time challenge—export diversification suffices. Ethiopia is gifted with abundant natural resources of adequate landmass with fertile topsoil and mineral-rich crust.Thank you for reading this post, don't forget to subscribe!
It is Africa’s water tower and has the continents largest livestock population. Its favorable climate and young population are also assets. Yet, most of its resources are not properly identified, well-managed, and well-exploited in a way that can resolve its forex crunch which has defined its economy for decades. It is with this challenging past and conditions that the last few years have seen revitalized efforts to shake up the sector and add more items to the exportable list, write Selome Getachew and Bamlak Fekadu.
For any developing country, foreign currency is a critical tool assisting not only with local grass-roots development but also contributing significantly to a nation’s overall economic health. Adequate foreign exchange reserves are an important factor for well-managed economies.
These reserves help cushion the effects of economic shocks, domestic or international. For its forex flow, Ethiopia benefits tremendously from the support of its diaspora which contributed USD3.6 billion last fiscal year.
Addressing the local business community recently, Prime Minister Abiy Ahmed (PhD) said “the crisis of hard currency will not be solved today, nor will it in the next 15 or 20 years.” The Premier pleaded for an urgent need for more cooperation with the private sector to find a solution, adding that remittances from the Ethiopian diaspora had reduced for political reasons.
Even more recently, in his latest six-month economic performance report to Parliament on February 22, the Premier shared notable figures on export, import substitution, and foreign direct investment—all areas that can curb the severe forex hunger.
He stated in his report that export trade earnings grew substantially—by USD37 million or 25Pct—but there’s still the need to diversify, especially into manufactured exports. Further, the country was able to save USD1 billion through import substitution by mostly reducing purchases of food, grains, and coal for cement manufacturers.
Ethiopian export numbers are a mixed bag but far from fulfilling their promise. The vast agricultural sector contributes about 85Pct of exports but only 45Pct of the national GDP; it also employs an estimated 75Pct of the country’s workforce. According to the national bank’s 3rd quarter report of 2020/21, export revenue from fruits & vegetables reached USD22.2 million. The figure is about 54.4Pct higher than the previous year and was due to a 12.8Pct increase in price and 36.9Pct rise in volume.
Even though diversifying exports has been recommended too many times to be ignored, it has never gotten the deserving attention which is relevant enough to actually make a difference. Recent efforts, however, signal that that might be changing, albeit slowly.
Among agricultural products that have recently captured the government’s attention are avocados. With sustainable demand from European countries like the Netherlands, adding the fruit to the list of Ethiopia’s exports is the right decision indeed.
The nation exported its first shipment by train from Modjo Dry Port in August 2021, initiating the pilot project as part of the National Cool Logistics Network. In this major milestone in the development of perishable goods export by sea, the 24-ton refrigerated consignment was produced by dozens of farmers in the Koga area in the State of Amhara. After the 750km train journey, the fruit was shipped from Djibouti to Europe, taking around 20 days.
Ethiopia obtained USD800,000 from avocado exports in 2019/20FY. Though not significant relative to total forex earnings of USD3.6 billion, it is promising enough in its infancy for some producers and exporters to change lanes. The figure has already blossomed in this year.
According to the Food, Beverage, and Pharmaceuticals Industry Development Institute’s annual performance report of 2020/21, USD1.7 million was obtained from crude avocado oil by just one producer—Sunvado PLC.
“Growing avocados is generally a very good opportunity for Ethiopia,” said Mr. Joost Heij, General Manager of Sunvado, the biggest avocado oil producer in Ethiopia. “Ethiopia has the right climate, altitude, and soil type,” he added. “There are huge opportunities in it; there is no doubt about it.”
The primary forex breadwinner for decades—coffee—secured USD854 million in the 2020/21 fiscal year. One hectare can accommodate up to 2,600 seedlings of coffee with an output of 10 to 12 quintals while one hectare of avocado plantations can hold 416 seedlings to yield 200 quintals. Even if the selling price of coffee is more than avocado’s, the sheer productivity per hectare of the green fruit makes it an exciting and competitive prospect.
Some of the best-performing markets in 2019 for Ethiopian avocados were Singapore, Sudan, United Arab Emirates (UAE), Kuwait, and the United Kingdom (UK). The year was a bumper year regarding global prices. In the three years prior—2016, 2017, and 2018—the average export price for a metric ton of avocado was USD499. However, in 2019, an explosion of sorts was seen in global prices to reach USD3750—a boom of 650Pct upon the average of the previous three years.
Ethiopia exported fresh or dried avocado worth USD165,000 to different countries, according to the nine-month report of the Ministry of Revenues for 2020/21FY, up from USD1,000 in 2013/14. Currently, the sector is budding with a growing amount of fresh avocado exporters as well as a handful of processed oil exporters.
The Ethiopian market is in a unique position to maximize its inherent advantages in production and become a major player while it is lucrative to do so, according to Wale Getaneh, Project Manager of fruit and vegetables for the horticulture activities of the Flying Swans Program at The Ethiopian Horticulture Producer and Exporters Association (EHPEA). Ethiopia has favorable agro-climatic conditions to produce fruits and vegetables for domestic consumption, as well as the geographic proximity to serve export markets in the region and globally.
Avocados are not the only agricultural produce being exploited by the Ethiopian government, producers, and exporters. A revitalized effort to attain higher revenues from chat exports is also underway. The evergreen semi-stimulant shrub widely grown and consumed in Ethiopia, Yemen, and Kenya and to a lesser extent in Uganda, Malawi, Zimbabwe, South Africa, Madagascar, and Zambia.
However, the plant is utilized in even farther off places. In Ethiopia, the plant’s development—both agriculturally and economically—has not been a state-driven and standardized economic undertaking. Decentralization and autonomy are the hallmarks of the sector with very little government interference.
For decades, business surrounding the plant has been run by an agglomeration of small local firms knitted together with a composition of local and, to a certain extent, foreign-based business groups.
According to the central bank, Ethiopia has exported more than USD116.5 million worth of the plant in 2020/21FY, placing fourth after coffee, gold, and flower exports. From the year prior, volumes have grown from 57,000 to 76,000 tons.
Despite the potential to provide additional income, economic opportunity, and access to technology to producers, the conflicting legal status around the globe causes policy and trade disputes between countries, according to Gebretsadik Tassew, Director of Bilateral Trade Relation and Negotiation at the Ministry of Trade and Regional Integration (MoTRI).
“There are issues raised concerning its legal status. Until recent times, it has been exported to numerous European countries in a dried form or as medicinal herb,” he told EBR adding that “the ministry has approved a directive which looks to install equal opportunity features to the market system which governs chat producers’ export to Somalia and Somaliland.”
The government’s intention of diversifying its exports with increased production of chat is very clear. Local exporters are now working aggressively to promote their products to potential importers including from Somalia, Somaliland, and Djibouti. “Fortunately for us, the dispute between Somalia and Kenya has given our exporters a larger market advantage,” said Gebretsadik, adding that his directorate is aggressively working on more market destinations for commodities.
New efforts are also reported around gum Arabic. Ethiopia is one of the countries well-endowed with various species of Acacia, Boswellia, and Commiphora that are known to produce gum Arabic, frankincense, and myrrh, respectively.
Available estimates of the total area of oleo-gum resin-bearing woodlands cover about 3.5 million hectares of land in the country, with over 30,000 to 33,000 metric tons of natural gum production potential. According to different study reports, gum and resins production is playing a significant economic role both at the local and national level today in Ethiopia, with their contribution growing every year.
Out of the total estimated production, over 10,000 tons is exported. According to different scholarly findings, the estimated production potential of gum Arabic has very high coverage in all regions of the country.
However, upon EBR’s visit to several offices and private enterprises, it was clear that acquiring reliable data on the annual production and condition of gum Arabic, especially produced in the southern and southeastern parts of the country, is difficult. This is mainly due to poor documentation from purchasing enterprises and producers as well as illicit border trade with neighboring countries.
Gum Arabic is a unique and natural product used extensively in pharmaceutical preparations, food industries like confectionaries and sweetmeats, cosmetics industries, and for other industrial products including ink, paint, paper, matches, and ceramic. It is used in the food industry to fix flavor, act as an emulsifier, prevent the crystallization of sugar in confectionery products, and as a stabilizer in frozen dairy products. It is obvious that its mass production shall have a meaningful impact on some import substitution endeavors in the food and paint industries.
According to Gebretsadik, the government’s consolidated efforts to diversify exports is showing an impact in the mining sector, too. In 2020/21, USD680 million was obtained from mineral exports, according to the Ministry of Mines. Further, export earnings from gold increased by more than seven-fold owing to a 407Pct surge in volumes and a 67.3Pct rise in international prices. Resultantly, gold’s share in total merchandise exports increased to 13.0Pct from 1.8Pct a year earlier.
Formalization of trade and export practices, mainly through the Ethiopian Commodity Exchange (ECX), also adds to commendable efforts in growing export item diversification. In July 2020, the government brought in three more agricultural products to the trading floor of ECX—speckled beans, pigeon peas, and pinto beans.
And in February of this year, four more agricultural items debuted on the exchange’s trading floor, bringing the total number of commodities traded to 15. A further thirteen are expected to the same as per MoTRI’s efforts, including black pepper, fenugreek, black cumin seeds, and coriander. Through these efforts, it is believed that close to 3.5 million additional small-scale farmers can sell through ECX.
The export sector has seen a little bit of shakeup in the way it operates, too. There have been some developments that may challenge ECX’s role in the sector going forward. It all came after the introduction of vertical integration trading by the Ethiopian Coffee and Tea Authority (ECTA).
The scheme aims to connect producers directly to exporters by cutting out middle players, which includes ECX itself. The State of Oromia—the largest coffee producer—accepted the scheme and announced the withdrawal of its beans from ECX’s floor.
The decision by Oromia garnered a split reaction from suppliers. Some prefer remaining with ECX as they received their paychecks relatively quicker. Others, including independent industry observers, attribute increased export volumes to the new scheme. Two things are clear though, export volumes have increased and producers are entertaining more income.
For the current fiscal year’s five months, over 133,113 tons of coffee were exported exhibiting an increase of 51,546 tons over the previous corresponding period. ECTA’s projected earning USD359 million by exporting 108,000 tons of coffee. However, the actual performance exceeded by 43Pct and 23Pct in terms of revenue and volume, respectively.
“The export basket is dominated by coffee, but its share is shrinking because there are a few other new export items entering the basket,” says Birhan Eshetu in his 2021 study, ‘Where are the Dynamics of Export Diversification in Ethiopia?’
The study acknowledges efforts to increase volumes and diversify items in recent years. One such commitment are regional integration efforts. It is known that the main objective of regional trade agreements, like the Common Market for Eastern and Southern Africa (COMESA), is to increase trade between countries in the region.
Yet, the origin of Ethiopia’s imports and destination for exports are predominantly outside of the African continent. Trends show Europe’s share of trade with Africa as decreasing while Asia’s share is increasing. Intra-Africa trade has remained about the same.
The study also identifies major factors that influence export performance in Ethiopia.
Institutional and structural changes are in the first group of factors that are found to have influenced the export sector. There are around seven different manufacturing institutes accountable to the Ministry of Industry. These institutes are given a shared objective to increase the exports base to uplift the country into an industry-led economy.
Trade facilitation and export priority are other factors. Due to the high export targets set in the Growth and Transformation Plans and different initiatives such requirements to join the World Trade Organization, COMESA, and the African Continental Free Trade Area, Ethiopia has undertaken numerous activities to facilitate exports and trade in general.
Another factor involves infrastructural improvements. Ethiopia has exerted various efforts to alleviate supply-side challenges like road and rail networks as well as dry ports which number seven or eight that offer special windows for exporters through banking, tax, and logistics services.
The involvement of foreign firms also seems to have paid-off, somewhat. The importance of foreign direct investments in a country is preached because most foreign firms are likely to bring not only capital equipment but also new technologies and human skills.
The study goes on to note that promotional works and preferential market access also have their share in the success the country is enjoying in diversifying its exports and increasing volumes. In the last decade, the role of embassies and participation of trade fairs can be noted.
Struggles and obstacles need to be overcome to achieve bettered success. The prospect for perishable and non-perishable agricultural exports looks promising so long as its biggest test of logistics and supply chain matters is solved.
The unavailability of refrigerated containers in Ethiopia, coupled with the high cost of air and ship transportation, has stunted the growth of exports including those of dairy, meat, and avocado. Towards this, the government is moving to construct Cool Port Addis with USD50 million from the Netherlands’ government. The project will feature cold storage facilities and integration with the national railway network and is part of the National Cool Logistics Network. Through this and other endeavors, export frustration is being curbed.EBR
10th Year • Apr 2022 • No. 106