Addressing the Manufacturing Sector's Constraints –


Ethiopia has portrayed a double digit economic growth for a decade. The credit for this goes to the crucial role the agriculture,manufacturing industry and service sectors played. However,for the sustenance of the momentum of growth particularly in the manufacturing sector, constraints should be addressed properly. The government has placed a special attention on the sector as it can serve as an engine for bringing structural change by absorbing stranded rural labour.

Currently agriculture is a mainstay of the economy. Eighty percent of the labour force is engaged in agriculture and it contributes about 50 percent to the nation’s Growth Domestic Production. The agriculture sector aims to take the nation into the middle income status by 2015 EC. The economic landscape must be changed.

The manufacturing sector must result in more employment. The advancement of the sector can bring a multifaceted benefit to the whole economy. It helps to link agriculture with industry,that means,products that come from agriculture could be utilized as an input for manufacturing food producing industries. This way ,value chains will be created. It also stimulates exporting industries to consume locally produced materials as an input .Here sugar production can be a case in point. The nation has vast land which can be harnessed for irrigable farm that could be devoted to the production of cotton and sugar. Such venture could create job opportunities for thousands both in farms and in manufacturing industries.

The sector is interlinked with various sub sectors and motivate the private sector to play a crucial role in job creation. For market-based economy, the nation is pursuing, private entrepreneurs can realize set dreams by investing their skills,experience and money in the business and for that not only conducive policies but incentives are also needed.Because, their initial working capital is very small. Currently both local and foreign companies are involved in the sector and at the same time, the number of employees is growing from time to time and the trend is promising. On the other hand, the linkage between the sector and the vocational schools helps the sector to be consolidated by skilled manpower.

Based on their curriculum the schools train students in different professions like electrical work,metal technology ,tailoring,wood work,weaving and textile engineering. Given this fact, investors could be attracted. Studies show that to draw Foreign Direct Investment better qualified working force is essential, for the production process requires competency and discipline.

In high income countries, small and medium size industries are responsible for over 50 percent of Growth Domestic Products and over 60 percent of employment but in low income countries they are less than half of that, that is 30 and 17 percent respectively and they gain profit in small margin.

In Ethiopia, though small scale enterprises are flourishing, their rapid growth gets hindered by many obstacles. According to recent studies,access to loan is very cumbersome. High collateral requirements are debilitating constraints for the smaller firms, since the most common types of collateral obligation are manifested by land and buildings or personal assets. Usually banks prefer immovable properties. The other thing which needs attention in this respect is that financial institutions in the nation, lack a commonly agreed definition. This leads to poor market segmentation along with lack of in depth customer knowledge and proper business strategy.

However, experiences of other countries show that banks provide loan for entrepreneurs only by scrutinizing their business plan. When the plan is reliable and feasible they show green light for loan provision. In this regard, the Asian countries banks can be mentioned. The poor could benefit from such schemes and millions could escape poverty. In the local context when the question of loan without collateral is raised the officials response is usual. They say the money is a public property and as such they could not dare to put the money on risk by simply providing without collateral. As a result, many young entrepreneurs fail to translate their dream into reality because of financial constraints. A year ago some International None Governmental Institutions have given a kind of protection to young investors eager to get access to credit from a bank for small scale enterprises engaged in developing renewable energy sources. Such kind of cooperation can be taken as an alternative means to address the problems of small scale enterprises which face financial constraints.

The other burning issues that need remedy are access to land and electricity.

These are the major components of production.However, many express their dissatisfaction in getting the service. Land is provided to investors through lease system and the announcement of the bid and the bid winners takes time . Reportedly once land is acquired the provision of infrastructure,particularly in outlaying expansion areas,like electricity,telecommunication and access to road turns out the big obstacle. Hence,addressing the problem must be a priority agenda. On the other hand, improving tax administration and advancing the simplification of small scale can help the sector be fruitful and attractive for local and foreign firms. In addition to that,improving trade logistics,custom procedures and trade regulation can positively impact large exporting firms and Foreign Direct Investment. Further more,business entry challenges such as licensing and registration should be further studied.

The government for over a decade has been trying its level best to improve the business climate by revising investment proclamation and according attention to the revision of Medium Scale Enterprise strategy,It as well has developed comprehensive and practical policies to facilitate the development of the enterprises. The other measure taken by the government that flickers a glimmer of hope for the sector is the establishment of Industrial Parks in Addis Ababa and other parts of the regions. The parks are established taking into account infrastructures such as road,electric power and telecommunication etc

However, in line with this, the above mentioned problems particularly inland logistics,custom bureaucracy and business entry hurdles should be tackled.

Currently the nation is registering a double digit economic growth which is taken as a sound progress. However, still the economic engagement structure is unchanged and agriculture is the mainstay of the economy and such situation is unhelpful to realize sustainable growth thus,the government assumes the manufacturing sector as a key to bring structural change and to advance the export sector. Currently the sector contributes only 4 percent of the GDP. This has to be changed. Addressing the sector’s constraints should not be a task to be deferred for tomorrow.

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