PRIVATE SECTOR PRIVATE SECTOR DEVELOPMENT HUBDEVELOPMENT HUB

THE COMPETITIVENESS OF THE COMPETITIVENESS OF THE ETHIOPIAN MANUFACTURING THE ETHIOPIAN MANUFACTURING

INDUSTRYINDUSTRY

BACTECPLC., CONSULTING ENGINEERS, ECONOMISTSBACTECPLC., CONSULTING ENGINEERS, ECONOMISTS

June 2009June 2009Addis AbabaAddis Ababa

The manufacturing sector in the The manufacturing sector in the Ethiopian economy:Ethiopian economy:– < 5% of GDP in 2007/08 :< 5% of GDP in 2007/08 :

Large and Medium 3.26%Large and Medium 3.26%

Small and Cottage 1.51%Small and Cottage 1.51%

– Exports 13.6% Exports 13.6% – Employment 4.9%Employment 4.9%

Current policy direction:Current policy direction:– ADLI: Agriculture Development Led ADLI: Agriculture Development Led

IndustrializationIndustrialization– IDS: Industrial Development IDS: Industrial Development

StrategyStrategy

THE PERFORMANCE OF THE THE PERFORMANCE OF THE ETHIOPIAN MANUFACTURING ETHIOPIAN MANUFACTURING SECTOR:SECTOR:

– Trends of basic manufacturing figuresTrends of basic manufacturing figures

COMPETITIVENESS OF ETHIOPIAN COMPETITIVENESS OF ETHIOPIAN MANUFACTURING:MANUFACTURING:

Concept and measures of competitiveness:Concept and measures of competitiveness:

Competitiveness capacity to sell one’s Competitiveness capacity to sell one’s product profitably;product profitably;

To be competitive a firm :To be competitive a firm :must undercut/offer products of better must undercut/offer products of better quality than competitors;quality than competitors;must be earning a level of return to the must be earning a level of return to the resources used in productionresources used in production

Productivity and competitiveness Productivity and competitiveness linked;linked;– A firm unlikely to be competitive if it A firm unlikely to be competitive if it

does not make a productive use of its does not make a productive use of its factors and other inputs;factors and other inputs;

– Hence, analyzing unit cost indicators of Hence, analyzing unit cost indicators of paramount importance for building paramount importance for building internationally competitive industries; internationally competitive industries;

Unit cost approach to competitiveness Unit cost approach to competitiveness based on comparing cost structure of based on comparing cost structure of local firms with those of competitors;local firms with those of competitors;

Costs fundamental determinants of Costs fundamental determinants of competitiveness; competitiveness;

Types of competitiveness Types of competitiveness indicators:indicators:– Domestic competitiveness;Domestic competitiveness;– International competitiveness;International competitiveness;– Indicator of comparative advantageIndicator of comparative advantage

Measure of competitiveness:Measure of competitiveness:

– Unit cost approach, a value <1 means a Unit cost approach, a value <1 means a firm produces at a lower cost than firm produces at a lower cost than competitors, thus more competitive;competitors, thus more competitive;

– Unit cost <1 means the firm making Unit cost <1 means the firm making pure profit; pure profit;

Estimation Results:Estimation Results:– CSA data (1998/99-2006/07) on medium CSA data (1998/99-2006/07) on medium

and large industries used;and large industries used;– Considering domestic competitiveness:Considering domestic competitiveness:

A great number reveal values <1;A great number reveal values <1;

An indication that they can sufficiently An indication that they can sufficiently withstand competition from abroad.withstand competition from abroad.

– Regarding international competitiveness:Regarding international competitiveness:More than 2/3 unable to cover cost of More than 2/3 unable to cover cost of production including capital, hence production including capital, hence uncompetitive uncompetitive

MAJOR CONSTRAINTS AND MAJOR CONSTRAINTS AND PROBLEMS OF PROBLEMS OF

COMPETITIVENESSCOMPETITIVENESS

External/Policy-related:External/Policy-related:– Import liberalization;Import liberalization;– High production cost of domestic High production cost of domestic

products;products;– Dumping;Dumping;– Under-invoicing;Under-invoicing;– Contraband/Illicit trade;Contraband/Illicit trade;– Poor private-public dialogue;Poor private-public dialogue;– Industrialization policy.Industrialization policy.

Internal Constraints/Problems:Internal Constraints/Problems:– Low product quality;Low product quality;– Business advocacy;Business advocacy;– Technology-related problems;Technology-related problems;– Human resources-related problems;Human resources-related problems;– Poor entrepreneurial quality and BDS Poor entrepreneurial quality and BDS

skills;skills;

Conclusion: Conclusion: – Ethiopian manufacturing by and large:Ethiopian manufacturing by and large:

Can sufficiently withstand competition from Can sufficiently withstand competition from abroad based on IDC values computed,;abroad based on IDC values computed,;

Unable to cover all costs of production including Unable to cover all costs of production including cost of capital, hence internationally cost of capital, hence internationally uncompetitive, based on IIC computed. uncompetitive, based on IIC computed.

Recommended measures:Recommended measures:– By governmentBy government– By the private sectorBy the private sector

END OF PRESENTATIONEND OF PRESENTATION