Economist Recommends Import Substitution to Withstand Internal, External Challenges

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May 03,2022 (ENA) Ethiopia needs to focus on import substitution amid the existing external and internal challenges, Economics Lecturer Berhanu Denu said.

The Addis Ababa University lecturer told ENA that the country has been importing a large list of items from various countries, including from Russia and Ukraine.

For instance, it has imported cereals, mainly wheat, food items and industrial inputs worth over 200 million USD from Ukraine and about 40 million USD worth of items from Russia in the Ethiopian fiscal year 2020, he added.

As a result, the current conflict between Russia and Ukraine — coupled with Ethiopia’s own internal challenges, could put the economy under further pressure.

According to him, these factors are disrupting the supply chain, causing shortage and price increase, limiting export and foreign currency, and affecting investments.

To reduce possible pressure on the economy, the economist suggested a range of options, including broadening and increasing domestic production, to sustainably substitute major imports.

“The most important thing, however, is to domestically produce the goods that we import, not only from Russia and Ukraine, but from other countries as well. We are purchasing a lot of goods which we could produce domestically and export rather than importing them.”

The economist believes that Ethiopia can produce most of the imported items, especially agricultural and industrial inputs or outputs.

“The country is trying to enhance its capacity of wheat production by engaging in dry season wheat production; and that is one of the options,” he noted, pointing out that other viable options include minimizing consumption, diversifying trade with other countries, and replacing import items locally.  

“I had an opportunity to visit one site of wheat production where cluster approaches are being used. Very extensive wheat production has been underway, and it is progressing in most of the regions. I am sure about 60 to 65 percent of the wheat imports have already been substituted by domestic production. I am sure we will be able to fully stop wheat import and even be able to export some in the coming few years,” Berhanu stated.

The lecturer recommends that Ethiopia primarily eliminate internal barriers and take action to enhance domestic production and safe transportation of goods to reduce the impacts of the economic disruption.   

“When it is difficult to transport goods even from the local production areas to the places where the goods are consumed or needed, then definitely one possible thing is to eliminate the barrier; and the barrier might be security. That type of security problem must (therefore) be resolved through the necessary measures.”

Instabilities observed in some parts of the country are becoming barriers to the flow of goods to consumers,  the economist said.

He elaborated that absence of peace would challenge the economy because less is going to be exported thus creating shortage of foreign exchange. And “when there is disruption in the import component, shortage of domestic supply of necessary goods will occur and prices and inflation will ensue as a result. That will definitely put the economy under further pressure.”

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