Ethiopia urged to ‘improve investment climate to become manufacturing powerhouse’

Recommendations in the bank’s latest ‘Ethiopia Economic Update’ include simplifying the tax system and improving trade logistics, customs procedures and trade regulations to promote export and foreign direct investment (FDI).

Ethiopia should also increase productivity through skills development, improve access to finance for firms, “especially for small and medium enterprises” (SMEs) and address “binding constraints including access to land and electricity, the bank said. Ethiopia should “implement measures to improve access to finance for firms especially the ‘missing middle’ or SMEs.. the majority of these companies are fully credit constrained”.

Business entry regulations should also be simplified along with “processes to promote a dynamic and thriving business sector”.

According to the bank, “managers in manufacturing firms spend a significant amount of time dealing with tax administration and a quarter of firms report tax administration as a major problem faced in their day-to-day operations”.

In its effort to accelerate manufacturing growth, “Ethiopia is implementing an ambitious ‘industrial park programme’, the bank said. “Using this approach, the strategy hinges on attracting FDI in the export-led and labour-intensive manufacturing sector. The imperative is to build on the country’s agricultural foundations by moving toward new tradeable activities in manufacturing that absorb large numbers of young and semi-skilled workers.”

The bank’s senior country economist Michael Geiger said: “Ethiopia’s skills gap and constraints related to access to land, infrastructure, trade logistics, and customs regulations in private investment have hindered the acceleration to structural transformation, unlike in East Asia, where FDI was able to capitalise on a large pool of trainable labour, enabling investors to improve productivity while benefitting from low production costs.”

Last year, Addis Ababa was included in a list of so-called ‘next 10’ cities in sub-Saharan Africa that are expected to see faster economic growth than any other region by 2040. The list was part of professional services firm PwC's 'Global Economy Watch'.

The enterprise project manager for Ethiopian Airports told Reuters earlier this year that a major infrastructure project designed to expand the capacity for handling passengers passing through the Bole International Airport, on the edge of Addis Ababa, was on course for completion in 2018. However, Hailu Gebremariam said authorities were already studying potential sites for a new international airport that would be able to serve up to 70 million passengers a year.

The Beijing-based China Communication Construction Company Ltd started the $300 million Bole expansion project last September.

China is a key infrastructure investment partner in Ethiopia. China has also backed a $475m metro rail project in Addis Ababa with construction carried out by the China Railway Engineering Corporation (CREC) and “mostly financed” through a loan from the Export-Import Bank of China.

The metro system will cover a combined distance of 32 kilometres, with two rail lines dividing Addis Ababa north-south and east-west, serving a total of 39 underground and overground stations. Shenzhen Metro, the enterprise managing the Chinese city's metro system, will operate the Addis Ababa metro for 41 months alongside CREC.