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World Bank Advised Ethiopia to Strengthen Competitiveness

worldbank-logoThe World Bank (WB) disclosed there is a need to strengthen competitiveness in the Ethiopian economy by diversifying and introducing value added export commodities. According to WB, such shall be done in order to tackle the recent problems such as drop in price the export sector is facing.

The export sector contributed to Ethiopia’s double digit growth in the past decade. It has helped create jobs and earn much needed hard currency for the nation. Nonetheless, the fact that the country’s export commodity is dominated by unprocessed and undifferentiated agricultural products made it vulnerable to price swings.

According to World Bank Country Director for Ethiopia, Guang Zhe Chen, there is scope for improving the nation’s existing commodity export’s quality by basic value addition. He for example suggested coffee wet processing or machine flaying of animal skins. He added, “By starting to compete on the quality of existing commodity exports (and not just on price), Ethiopia can reduce sensitivity to volatile international prices thereby supporting the gradual shift of production and exports into agro-processing and light manufacturing”.

Even if Ethiopia has the second highest population in Africa, it has one of the lowest ratio of merchandise export to GDP from the entire world. According the WB, the business environment favors existing firms and deters new export businesses from entering the market, and even so, no multi-product, multi-country “export superstars” are emerging.

One of the lead authors of the recently released WB report and a Senior Economist at the Bank, Lars Moller, said “The expansion of exports is often behind spurts in economic growth. Successful exports also create dynamic efficiency gains by exploiting economies of scale, adopting best practices in foreign technologies and business processes, and by being subject to international competition”. He added, “Export sectors are also associated with productivity gains leading to wage premiums and job creation. Moreover, there is a foreign exchange element of exports that is important for sustainable growth.”

WB report also made some more suggestions to the Ethiopian export sector. It suggests, Ethiopia to ease binding constraints related to reliable power supply, credit, and foreign exchange and also to establish Industrial Zones that conform to international best practice.

It further recommends the nation to increase value-added, quality and branding exports.
The report also makes two more suggestions; to revise burdensome business rules that obstruct firm entry, especially high start-up capital requirement and pre-registration bank deposits. The other suggestion is improving regulatory quality, including the implementation of a pro-competition legal framework.

Source: World Bank