The Ministry of Industry (MoI) has introduced a new strategy to get the manufacturing sector back on the path of the Growth and Transformation Plan (GTP) strategy.
The ministry has been evaluating the first three years of the GTP performance and developing new strategies based on the results. It has disclosed that it has undertaken several new arrangements and strategies for the last two years of the five-year plan to meet the manufacturing goals of the GTP, which will end mid-2015.
The five-year development strategy that commenced in the 2010/11 budget year is expected to make the manufacturing sector the leader of the country’s economy, which is now dependent on agriculture.
Even though the government has developed several strategies and formed new institutional arrangements to boost the sector and has expanded private sector involvement, the manufacturing industry is expanding based on the level of government involvement.
Ahmed Abetew, Minister of Industry, said that the ministry has evaluated the past three years’ performances in detail and is prepared to follow the GTP strategy to meet the target.
In the press conference that was held on September 25, 2013 the minister, who was recently appointed to the position, said that the past years’ challenges have been identified and the ministry will work with other stakeholders to combat those challenges.
“Coordination problems between government offices, capacity challenges, input scarcities and delays of new companies to commence production are the major problems that the ministry will focus on in these two years in order to get back to the original strategy that was set in 2010,” Ahmed said.
“The manufacturing industries production capacities will grow to 80 percent from about 50 percent in previous years,” he added.
“In the past three years the ministry was fully engaged in encouraging and supporting the sector development to achieve the GTP,” Ahmed explained for the media about the past year’s achievement in the sector and to clarify the issues as to why the sector did not meet the target in the specific period.
He said that the ministry is now working with international institutions to develop an industry strategy and to expand industrial zones in the country.
Three weeks ago the ministry signed a deal with the China Association of Development Zones (CADZ) to conduct a feasibility study on establishing the first Special Economic Zones (SEZs), mainly in Dire Dawa.
The ministry has been also working to identify potential local and foreign investors to get involved in the sector.
“We have carried out an initiative package to encourage the export share in global market,” he said.
Ahmed Abetew further said that even though the sector is not developing based on the GTP strategy, the sector has registered some encouraging achievements in the past few years.
According to the GTP plan, the manufacturing sector has to grow by 20 percent, while the sector registered 15 and 13 percent growth in the 2010/11 and 2011/12 budget years respectively.
The medium and large scale industries development growth has been 18 percent, according to the minister.
Ahmed said that while the sector development is below the target, it is successful when compared to other sectors.
“For instance, the agriculture sector growth was 9 and 4.9 percent in the 2010/11 and 2011/12 respectively and the service sector has also registered 12 and 11.1 percent, which are lower compared to the manufacturing growth rate,” the minister explained.
But he confirmed that the sector exports did not register ample growth compared to industrial production growth.
According to the minister, one of the successes of the manufacturing sector is the involvement of the local investors.
“Despite the local investors’ involvement being small, it has grown compared to previous years,” he said.
“The growth of international wholesalers, like companies engaged in garment and footwear manufacturing, is the other encouraging move for the sector development that has been seen in the past few years,” he added.
The international wholesalers are now opening offices in the country to export products made according to their standards. For instance H&M, a prominent Swedish based garment retailer, has opened an office in Addis to supply its stores with products from the country’s garment industry.
During the long press conference that lasted for over two hours, the minister also explained the challenges and barriers that manufacturers face.
One of the major complaints that the private sector expressed is a lack of sufficient support given by the government.
“In our evaluation we have also identified the concern that the private sector raised. We have to provide more support for the sector actors or manufacturers,” he said.
“Currently, the private sector is not working to full capacity. The government support is basically to expand the production capacity based on manufacturers’ existing capacity,” he said.
The minister said that on average the manufacturing sector is operating at 60 percent of its capacity.
According to the new strategy, the ministry aims to expand that to 80 percent in the current budget year.
“The sector needs support to meet the target,” the minister said.
The other problem that the sector actors raised is a lack of ample power supply and frequent power cuts. “The power shortage is one of the barriers that the manufacturing industry faces,” he explained.
He added that the logistics and customs clearance is another major problem that affected the private sector and has been a lag on production.
In the current budget year the ministry aims to generate 1.3 billion USD from manufacturing exports, which would reflect a 23 percent growth rate.
To meet the target the ministry has undertaken various activities, according to the minister.
“New manufacturers, who have been under preparation, will soon commence production under the industry zones (Bole Lemi Industry Zone) and other investors will join the sector,” he said.
The ministry has projected exports to be 60 percent of the total production from the manufacturing sector, which was 30 percent in the previous year. To increase the export volume and reach targets the logistics service has to grow. The minister said that they are working with other governmental stakeholders to accelerate the multimodal scheme.
In the past year, the total goods that were transported using the multimodal scheme was 52 percent and in the current budget year there is a target to expand that to 80 percent. “But the manufacturing sector shall use any of the logistics scheme to transport inputs or exports,” the minister explained.
The minister said that the ministry will not revise or shrink the original GTP plan in the manufacturing sector, even though its achievement was very weak in the past few years.
“The sector has the potential to achieve the projection if the production capacity is increased. Due to that we will not revise the original projection,” he added.
The ministry has announced that it is aggressively facilitating loan schemes for the manufacturing sector from the Development Bank of Ethiopia (DBE), one of the three state owned banks, to encourage private sector activity.
But the minister said that the loan requests are growing faster than the local banks capacity.
“Our embassies have been strongly lobbying the 70/30 loan scheme to foreign companies, due to that the number of companies that demand huge loans is growing, which is challenging the banks capacity,” he said. “Now we are negotiating with companies to come with up to 60 percent of investment capital and 40 percent loan incentives but we shall appreciate more loans for some investments,” he elaborated.
Currently, the savings rate has grown to 16 percent of GDP, which was 6 percent a few years ago, and in the current budget year the savings rate is expected to be 20 percent of the country’s total GDP. “The savings growth rate has contributed to state banks’ ability to disperse more loans to companies,” he added.
He advised the local business community to join the manufacturing sector, which has several incentives including financial support.
Even though the government had plans to develop and expand the industry in the five-year Growth and Transformation Plan (GTP), the sector growth has not been going according to expectations.
For instance, based on the GTP, in the past fiscal year (2012/13) the government had originally planned to export about USD 1.1 billion worth of products from the industry, but the actual performance shows it earned about USD 282 million. The performance of the sector during the first two years of the GTP has also fallen short of the projections.
During the current budget year, the Ministry aims to earn USD 1.3 billion from the manufacturing sector. Even though the current year’s projection is very high compared with last year’s achievement, it is still below the original GTP target for this year. The original plan indicated that the sector has to generate about USD 1.6 billion in the 2013/14 fiscal year.
The Ministry has made several evaluations and held meetings in the past few months. Meetings with stakeholders, which included the private sector and government financial institutions, have been carried out to resolve outstanding problems and expand exports from the sector.
The evaluation of high level and lower level management of several departments within MoI has already been conducted. Following such measures, reforms at the ministry office have taken place and additional departments have been established.
For instance, new divisions led at the state minister level have been set up. When the Ministry of Industry was set up and organized in 2010 at the beginning of the GTP period, only one state minister had been appointed, but now the number of state ministers has increased to three, with new and separate responsibilities.
Tadesse Haile, who served the industry sector for several years at the state minister level, is now responsible for the Textile, Leather and Metal Industries division. Mebratu Meles (PhD), who was appointed as state minister two months ago for MoI, is responsible for the Chemical and Construction divisions, while Sisay Gemechu, the third state minister, is responsible for the Investment and Industry Zone Development divisions.
The Meat and Dairy Technology Development Institute, which was under the Ministry of Agriculture, has now been placed under MoI with the aim of boosting agro processing investment.
The Agro Processing Division at the Ministry has now been replaced by the Food, Beverage and Pharmaceutical division to expand the responsibility of the former division.
The Ministry has also established another new department under the name Chemical and Construction Industries Development.
The Ministry also discussed several issues with exporters to assess the problems they face and find viable and lasting solutions. In the past few weeks, Ministry officials held meetings with officials of the Commercial Bank of Ethiopia and the Development Bank of Ethiopia to evaluate their support for sector development and to discuss future strategies in terms of financial support for the industry.