Ethiopia Looks At Chemical, Construction Industries to Diversify Exports

The production of chemicals, especially fertilizer, soap and detergent are among the sectors that received top priority in the Growth and Transformation Plan (GTP) of Ethiopia. The objective is to build up sufficient production capacities to satisfy local demand and substitute imports. However, currently, the only chemical product with significant existing export potential is hair preparations.

Exports have mostly gone to Sudan in the past. Potentials to export to other markets are limited, as the biggest importers of the product (the United States, United Kingdom and Germany) tend to purchase from nearby suppliers, documents revealed.

According to the Ethiopian Investment Commission, Foreign Direct Investment from China, India and Europe has come to the chemical and construction industries’ subsectors ranging from soap and detergent to chemicals used in the leather and construction industries.

Among the identified diversification options, organic chemicals are the major once as their demand is the largest in China and the EU alike.

Cement has been prioritized in the GTP with the principal objectives to satisfy local demand and to build capacity to serve export markets. Up to 2014, USD 1.7 million and USD 1.5 million exports were destined to neighboring Djibouti and Somalia respectively. Yet, recently with regard to a high shortage of cement product for local consumers, the government has decided to stop exporting cement.

Ethiopia possesses other natural resources like iron, copper or nickel, which has very high demand in China and the EU. The construction and mining sectors are also expected to contribute significantly to Ethiopia’s GDP over the GTP II, running from 2015/16 to 2019/20.

To make the industry internationally competitive, the GTP II foresaw investment in capacity building to bring in new technologies and skills. Capacity building for infusion and adaptation of skills and technologies and critical infrastructure gaps are among the challenges to realize additional exports in construction materials.

The government of Ethiopia is working keenly in order to strengthen and exploit the export potential in the chemical and construction industry. Besides, the government is adopting new laws, and carrying out capacity building campaigns and training for the manufacturers and exporters in the sector.

Accordingly, Chemical and Construction Inputs Industry Development Institute (CCIIDI) announced that it is planning to earn about 1.3 billion USD from the export of chemical and construction products in the coming ten years.

Yonas Abate, Rubber and Plastic Industry Development Directorate Director at CCIIDI told The Ethiopian Herald the institute has included various tasks to be accomplished in its plan to boost the performance of manufacturers and achieve the plan of earning up to 1.3 billion USD from export in ten years time.

Each chemical and construction manufacturing industry across the nation is expected to allocate five to ten per cent of its products for export in order to achieve this goal; he said adding that strengthening Public-Private Partnership (PPP) would also be the priority task in the coming years.

Stating the lack of surplus product, increasing local demand, shortage of foreign exchange that manufacturers face and lack of productivity as the basic challenges in the sector, Yonas said that the manufacturers should work harder in collaboration with the institute and other stakeholders to resolve the challenges and bring about a meaningful change in import substitution.

As to him, if both the manufacturers and the government work aggressively in increasing export potential of chemical and construction inputs and products, this will make it possible to significantly reduce the 49 billion USD the country is expected to spend in the coming ten years on the importation of chemical and construction products.

On Thursday, the institute organized an event under the theme “Creating Globally Competitive Industries” where representatives of more than 200 exporters, new export potential industries, embassies and state officials participated. On the occasion, Export Trade Development State Minister of Trade and Industry Ambassador Misganaw Arega stated that the country should increase its export potential in order to achieve the 2025 Sustainable Development Goals.

Being hopeful that joining the Africa Free Trade Area (AfFTA) and World Trade Organization (WTO) is a good opportunity for Ethiopia, he noted that the private sector should be an engine for sustaining the nation’s goal to be center of export excellence in Africa.

Since the ratification and enforcement of Ethiopia’s AfFTA’s membership in March 2018 and March 2019 respectively, the country’s competitiveness on the global market has been increasing.

In addition to increasing global market competitiveness, free trade enables countries to specialize in certain goods from which they can gain the advantages of economies of scale and lower average costs; this is especially true in industries with high fixed costs or that require high levels of investment. The benefits of economies of scale will ultimately lead to lower prices for consumers and greater efficiency for exporting firms.

With the transition of political power in April 2018, Ethiopia has expressed its readiness to work jointly with members to advance and, hopefully, conclude, the WTO accession process by the end of 2021.

“While the world is shifting rapidly, it is time for Ethiopia to reap peace dividends with good faith to blossom into prosperity, security and opportunity. I have no doubt that today’s Working Party meeting will contribute to reaching this goal, by becoming a critical turning point in the history of Ethiopia’s accession” to the WTO,” said the reformist Prime Minister Abiy Ahimed in his Nobel speech.

Noting the premier’s speech can inspire both the government and manufacturers to work on to fully tap the export potential in the sector, Misganaw called on exporters to take this advantage for the common benefit.

Misganaw also noted that the government has made paradigm change in increasing export potential of the manufacturers. Noting that the government is executing a law that allows 45 per cent of the total foreign currency allocated by the National Bank of Ethiopia for manufacturers and agriculture, he pledged the private investors to genuinely support the government’s ambitious plan to improve its export potential.

Appreciating the event as it is the first of its kind, Tihitina Legesse, Managing Director of WARYT Mulutila International PLC for her part explained that the PLC is working ardently in order to bring successful achievement in exporting furniture goods for African countries soon and Asian and others in the near future.

As to her, what the manufacturers expect from the government is the provision of incentives through adopting a synergized policy. She suggested that incentives such as the reduction in interest rates and surtax would encourage local manufacturers to strive to export more.

According to her, her company is working to be center of excellence and training center for other manufacturers. The private sector should play a role to develop the county’s economy by generating tax revenue and building the country’s image by producing quality products that meet international standards.

With regard to the manufacturer’s quest and idea, Samuel Halala, Director General of CCIIDI added that issues related to electricity, tax rate, tax holiday and manufacturing area will be solved soon. He also called state heads to bring lists and problems of the manufacturers in their region in order to support them.

As to him, Ethiopia has constructed and inaugurated a number of industrial parks and agro-industrial parks as well. Coupled with creating an international market chain, inspiring Ethiopia’s export potential in the chemical and construction industry is vital for the country to develop its export-led industry.

They all agreed that the more the country creates the utmost potential of generating quality product of chemical and construction inputs for local as well as foreign markets, the more it would become capable of generating the highest foreign currency to facilitate an economic boom.

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