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Ministry hopes lower profit tax encourages exports

Even though the Ethiopian government established an ambitious plan to expand the manufacturing sector during the five year Growth and Transformation Plan (GTP), the actual performance continues to be below expectations.

The first half of the current fiscal year’s manufacturing sector export achievement fills only 13 percent of the full year’s target.
In the current fiscal year the government plans to earn about USD 1.3 billion from exports from the manufacturing sector, while the GTP Policy Matrix stated that the 2013/14 export generation would be USD 1.6 billion.
However, the Ministry of Industry (MoI)  has a goal of earning about one third of the GTP target in the current fiscal year, but the first half year achievement is by far lower than needed to meet the target.
In the first six months of this fiscal year the country has earned USD 175 million from the manufacturing sector, which is about 13 percent of the ministry’s target for the full year and about 11 percent of the GTP’s original target.
Even though the performance is not as high as hoped Ahmed Abetew, Minister of Industry is ambitious to meet the goals. At a press conference held on Tuesday March 4, the minister said that there was a possibility  they could still meet their targets.
“There are new companies that will begin exporting in the coming year so we have a big opportunity to meet the target that we set in the beginning of the GTP,” he explained.


“Our evaluation has shown that that we can achieve the target if these new companies get on the system based on the project,” he added.
He argued that one of the major challenges in meeting the export targets is the challenge of a wide market in the country for textiles, which is the major manufacturing sector that is expected to generate the largest amount of hard currency in the GTP. “Our production track record is very close to targets but export achievements are not as high because there is a large demand in the local market for textiles,” he said.
According to the Ahmed, the government is strongly working to encourage foreign based textile manufacturers to export their product.
Based on the performance of this fiscal year’s first six months, the ministry has evaluated the result and held discussions with people involved in exporting goods.
Sources told Capital that the ministry talked to exporters, sectoral associations, chamber of commerce’s and other stakeholders to get the performance back on track. Early this fiscal year the ministry organized a similar event with stake holders to meet the target after it evaluated the performance over the past three years. Sources indicated that export based companies have taken quotas from the government after discussions held with every sector.
MoI had also ordered the private sector to submit their export plan for the current budget year. According to different sources from the private sector, early in the budget year the institutes that are responsible for manufacturing goods under MoI have imposed a yearly minimum export quota on every company in the sector.
Employees at the ministry have also received an industrial strategy and management training after the end of the first half year, according to sources. “The employees’ strategic training occurred following the evaluation that suggested the ministry staff needs to take a new training about the strategies of the government and the ministry,” sources added. The latest training is the first that was given for leaders at the ministry after the beginning of the GTP.
The GTP matrix indicated that the country will generate USD 2.5 billion from the manufacturing exports by the end of the GTP (2014/15), which is quarter of the total target in exports.
From the total 2.5 billion the government planned to generate USD 1 billion from textile and garments, leather USD 500 million, sugar USD 662 million and agro processing USD 300 million.
According to the minister, the government is working to develop the tax/customs and commercial law, which is expected to encourage new investments.
The minister also said that the new law may consider minimizing the current 30 percent profit tax for the manufacturing sector.
Currently the ministry office is taking different measures to boost the manufacturing sector, even though the sector’s growth has been lower than expected. Currently the ministry has established an industrial zone at Bole Lemmi and has also transferred notable foreign manufacturers there. It is also constructing another industrial zone in a similar location.
The previous government strategy has been focusing on private actors to develop industrial zones, but it has now revised that and the government by itself or in a joint venture with private companies will develop an industrial zone.
The World Bank is also expected to finance another industrial zone development that will be built in the outskirts of Addis Ababa.
The Minister also stated that the final approval of the board of the bank is expected in the coming May.
The ministry is also working with the Chinese, China Association of Development Zone (CADZ) to develop the first special economic zone in Dire Dawa, in the eastern part of the country. The minister said that the CADZ final study about for the formation of the economic zone is expected to come in May this year. “We will see who will develop the economic zone after we evaluate the study, but we have companies that are interested to develop the project on a JV basis,” he said.
Even though the government is developing an industrial zone in Addis Ababa, the ministry plans to develop industrial zones in four areas based on the five year plan, three areas have not yet had an industrial zone developed in them.
At the press conference the minister also stated that government will never change its stand on guaranteeing local manufacturers to secure loans from external financers. Currently local companies, especially share companies who want to invest in the manufacturing sector have a chance to obtain finance from international loan providers, but they cannot get the opportunity to secure a loan in hard currency because those loan providers are requesting a  guarantee from the Ethiopian government.