Why?
The existing infrastructure in Ethiopia requires significant improvement to effectively support logistics activities. The country’s lack of direct access to a seaport imposes extremely high costs on the citizens. The price of a commodity is determined among others by logistics costs. In many countries, logistics costs are considered reasonable when they account for 5–15% of the total price of goods. However, this is not the case in Ethiopia.
Due to various structural and operational challenges, logistics costs in Ethiopia are exceptionally high. While some of these challenges have already been mentioned, there are additional underlying causes. On average, logistics costs in Ethiopia account for approximately 25–30% of the total product cost. Data shows, logistics expenses are estimated to be up to 60% higher than in neighboring countries.
What Does Logistics Cost Include?
In this context, logistics costs refer specifically to expenses related to the movement, storage, and handling of goods.
Ethiopia incurs additional costs for services such as storage and handling goods at the Port of Djibouti. Unreliable infrastructure often results in delays. From a logistics perspective, time is critical. Failure to deliver goods on time increases the final price of commodities and, in extreme cases, may lead to product obsolescence.
Why Are Logistics Costs Higher in Ethiopia?
Several factors contribute to the high cost of logistics:
- Inefficiencies in logistics infrastructure and management
- Bureaucratic bottlenecks
- Under developed communication systems
- Heavy reliance on the Port of Djibouti
- Limited competitions in the sector
Cost of Moving Goods
Transportation accounts for the largest share of logistics costs. At present, the cost of moving goods—whether by truck or train—appears disproportionately high. Operators often attribute these high costs to recent economic reforms, inadequate infrastructure, while customer complains for limited competition in the sector.
Measures taken So Far
1. Incentives for Investors
The sector is now open, at least in principle, to investors interested in participating in logistics-related activities. Regulations set by the Ministry of Transport and Logistics allow investors to engage in activities such as:
- Transit services
- Acquisition of duty-free transportation equipment
- Construction of dry ports
- Multimodal Operators
These measures aim to encourage private participation and create multiple strong players in the logistics sector, thereby reducing single-operator dominance.
The Way Forward
Improving logistics requires a multidimensional approach and the involvement of various stakeholders.
1. Infrastructure Development
Establishing a well-integrated transportation system is essential. In logistics, lead-time is a critical factor. Delivering goods on time is far more valuable than delivering them anyway. Therefore, improving transportation infrastructure and reducing bureaucratic delays are vital for meaningful transformation.
Ethiopia, despite lacking direct sea access, has around eight dry ports, many of which operate below capacity. In comparison, Egypt—with a population of approximately 120 million, slightly less than Ethiopia’s estimated 135 million and with extensive sea access through the Red Sea and the Mediterranean—has plans to build 33 dry or inland ports. Expanding and efficiently utilizing dry ports in Ethiopia could strengthen the logistics chain, reduce congestion at seaports, and boost transit trade. Having enough dry ports, that can as a container refugee place, across the nation help to reduce cost of commodities by substantially reducing container demurrage.
2. Smart Logistics
Modernizing the logistics system by adopting state-of-the-art technologies can significantly improve efficiency. This includes the introduction and utilization of digital infrastructure for communication, cargo tracking, fleet management, and real-time information sharing.
3. Ecosystem Development
Modern logistics challenges require collaboration among multiple stakeholders. Building a coordinated ecosystem involving government agencies, private operators, financial institutions, and international partners would enhance integration and efficiency across the sector.
4. Strong Diplomatic Engagement
Constructive and mutually beneficial diplomatic relationships are essential, particularly with neighboring countries involved in trade corridors. Unstable or unreliable interstate relations significantly increase logistics costs.
5. Economic Strength
A weak economy limits investment in infrastructure and reduces a country’s influencing power. Strengthening the broader economy is therefore fundamental to improving logistics performance.
6. Responsiveness for logistics
Stronger integration among stakeholders can do more than improve operations—it can transform the entire sector. Recognizing the strategic importance of logistics is essential for national development.
7. Leveraging Comparative Advantages
Ethiopia’s geographical location, large population, and cultural ties across borders offer strong potential for regional influence. The country’s natural resources position it as a key water source in the region, and in recent years it has also emerged as an energy supplier to neighboring countries. Effectively leveraging these advantages could strengthen its position in regional logistics and trade negotiations.
8. Internal Conflict
Security challenges increase transportation risks and insurance costs. As a result, buyers ultimately pay higher prices for commodities due to delays and additional expenses caused by instability. On top of that informal tax collectors also anther player in increasing cost of logistics.
