2015年-世界发展银行全球_Fourth_Ethiopia_Economic_Update___Overcoming_Constraints_in_the_Manufacturing_Sector_76页_2mb

Ethiopia Economic Update: Overcoming Constraints in the Manufacturing Sector (July 8, 2015)

Core Content Summary

This document provides an analysis of recent economic developments in Ethiopia and outlines the challenges and opportunities for the manufacturing sector, particularly in the context of global oil price declines and the country's Growth and Transformation Plan (GTP). It emphasizes the need for policy reforms to support manufacturing growth, enhance productivity, and improve the business environment.

Main Economic Developments

Real Sector

• Real GDP Growth: Ethiopia experienced strong economic expansion in FY14 with real GDP growing by 10.3%.
• Sector Contributions:
  • Services sector was the main contributor, accounting for 5.3 percentage points.
  • Industry contributed 2.8 percentage points, driven largely by construction.
  • Agriculture contributed 2.3 percentage points.
  • Manufacturing contributed only 0.5 percentage points, a decline from the previous year.
• Per Capita Growth: Real GDP per capita grew by 7.2%, close to the required 8.0% for middle-income status by 2025.

Monetary Sector

• Inflation: Remained in single digits for two years, reaching 9.4% in May 2015.
• Inflation Drivers: Food inflation increased significantly (10.1% in May 2015), while non-food inflation remained stable.
• Reserve Money Growth: Volatile, with a 21% increase in November 2014, following a -3.7% decline in December 2013.
• Broad Money Growth: Increased from 21% in March 2014 to 30% in November 2014.
• Credit Growth: Net domestic credit growth reached 31% in November 2014.
  • SOE Credit: Dominated at 37% year-on-year growth.
  • Private Sector Credit: Declined from 66.5% in 2007/08 to 40.1% in 2013/14.
  • Credit to GDP: Dropped from 15.4% in 2003/04 to 10.9% in 2013/14, below the SSA average.

Fiscal Sector

• Budgetary Stance: Cautious at the general government level.
• Public Sector Salaries: Increased in FY15 to adjust for rising living costs.
• Public Investment: Accounted for more than half of GDP growth in 2013/14.
• Private Investment: Contributed 24% to GDP growth.
• Private Consumption: Contributed 14% to GDP growth.
• Public Investment Growth: Averaged 14% over the last three years, driven by domestic and external credits.
• Net Exports Contribution: Negative (-4.3%) due to large capital imports.

External Sector

• Current Account Balance: Weakened due to a worsening trade deficit.
• Export Performance: Positive growth in 2013/14 but below historical rates, and turned negative in late 2014 and early 2015.
• Terms of Trade: Expected to increase by about 6 percentage points in FY15.
• Exchange Rate: Real effective exchange rate appreciated by 22.5% (y/y) in April 2015, raising concerns about export competitiveness.

Economic Outlook

• Positive Impact of Oil Price Decline:
  • Expected to increase disposable income and domestic consumption.
  • Likely to reduce the price of goods and services by 1.8%, benefiting urban and wealthier households.
  • Could improve the current account deficit by 1.5 percentage points of GDP.
• Long-Term Outlook:
  • Growth is expected to remain high in the short term but gradually decline in the medium term.
  • Structural transformation remains slow, with manufacturing contributing only 0.5% to GDP growth.
• Poverty Reduction: Continued strong growth and lower oil prices are expected to further reduce poverty.

Challenges in the Manufacturing Sector

• Low Productivity: Domestic and private firms lag behind foreign and older firms in productivity.
• Skill Gaps: Limited availability of skilled labor, both technical and soft skills, hinders manufacturing growth.
• Access to Finance: SMEs face significant credit constraints, contributing to the "missing middle" phenomenon.
• Operational Constraints: Include land access, electricity supply, and entry barriers.
• Business Environment: Regulations and information asymmetry affect SMEs more than larger firms.
• Industrial Parks (IPs): While IPs are a tool to attract FDI, they face challenges in integration with the local economy and efficient utilization of infrastructure.

Policy Recommendations

1. Focus on Skills Development: Enhance productivity by improving the skills of the workforce.
2. Improve Access to Finance: Especially for SMEs, to address the "missing middle" phenomenon.
3. Address Land and Electricity Access: Reduce operational constraints for manufacturing firms.
4. Simplify Tax Administration: Streamline the tax system for MSMEs to improve their financial environment.
5. Improve Trade Logistics and Customs Procedures: Enhance efficiency for both FDI and large firms.
6. Simplify Business Entry Regulations: Facilitate firm entry and exit to support a dynamic business environment.
7. Strategic Development of Industrial Parks: Align with international best practices to ensure integration with the local economy and efficient use of infrastructure.

Key Findings

• Ethiopia's economy has shown strong growth, primarily driven by the services and construction sectors.
• The manufacturing sector remains underdeveloped, contributing less than 5% to total employment and only 0.5% to GDP growth.
• The appreciation of the Ethiopian Birr raises concerns about export competitiveness.
• The oil price decline is expected to have a positive impact on inflation, consumer prices, and the current account.
• The financial sector is well-capitalized and profitable, but financial intermediation remains low and declining.
• The role of industrial parks in attracting FDI is significant, but their success depends on integration with the domestic economy and institutional capacity.

Conclusion

The manufacturing sector is a key driver for structural transformation and poverty reduction in Ethiopia. However, it faces multiple constraints including low productivity, skill shortages, and limited access to finance. Addressing these issues through targeted policy reforms and improving the business environment are critical for the sector's growth. The role of industrial parks and FDI in manufacturing development is promising, but requires careful planning and implementation to ensure their effectiveness.