Despite a substantial boost in export incentives offered by the Ethiopian government, revenues from the country’s export sector have registered a considerable decline since 2011.
Business Consultant Melaku Kinfegebriel attributes this discrepancy to the misuse of incentives.
In recent years, one of the primary goals of the Ethiopian government has been to boost the country’s export revenues primarily by offering incentives to manufacturers and foreign buyers. Numerically, the incentives offered by the government in 2016 amounted to a value of over $3 billion.
This value has more than doubled since 2011, when government incentives for exporters amounted to just over $1 billion. Incentives for manufacturers have taken many shapes and forms, including tax concessions on machinery and the import of capital goods, in addition to the waiving of export taxes.
Nevertheless, these incentives have failed to produce any tangible benefits, given that the export revenues for Ethiopia have fallen since 2011. Exports in 2016 generated revenues amounting to nearly $2.9 billion, whereas export revenues in 2011 stood at over $3.1 billion, as per the Ministry of Trade & Industry.
According to Melaku Kinfegebriel – Business Consultant at Noble Consulting – there is an intuitive reason for this discrepancy. “There could be many reasons for the failure of Ethiopia’s incentives to boost its foreign currency earrings. But in general these figures tell us that the incentives have been misused,” says Kinfegebriel.
“Either those engaged in the manufacturing sector and got those incentives are not exporting as they promised. They could be focusing in the local market. Or even if they are exporting they are maybe engaged in under-invoicing and contraband border trading, which reduce the amount of foreign currency coming to Ethiopia,” he continued.
However, Kinfegebriel concedes that there could be several reasons for the falling revenues, including fraud. “Or the companies didn’t go operational at all, which means some were fake established only targeting the incentives. In my opinion, the reasons could be the sum of all these and other factors,” he added.
The problem is of particular significance to Ethiopia, given that its unique market structure is heavily reliant on the export of agricultural produce such as fruits, vegetables, tea, coffee, as well as wax & oil seeds, cereals and spices. The primary barrier to a shift towards manufacturing has been a shortage of power in the country, something that the government has been focused on rectifying.