Ethiopian Textile Industry Development Institute

Proposal on

Assessment of Export Incentives for Textile and Apparel Sector

March, 2022
 1. Introduction

Ethiopia has long recognized the role of export for economic growth and development. In 1992 the
country established an Export Promotion Council (EPC) led by the Prime Minister. It also adopted,
in 1998, an export promotion strategy, which led to the establishment of the Ethiopian Export
Promotion Agency (EEPA). The export promotion strategy was later transformed into a
comprehensive Industrial Development Strategy (IDS) in 2002. The IDS identifies export oriented
sectors such as, among others, Textiles and Garment; and Leather and Leather products as priority
sectors and aims at increasing the value and volume of export in these sectors. This strategy was put
into action in the subsequent five years development plans, which carry explicit export targets.
Various export incentives and capacity building programs have been devised and implemented to
encourage exports in these sectors.

For instance the current Investment proclamation (proclamation No. 769/2012) has come to effect up
on repealing the earlier (Investment proclamation No. 280/2002 and its subsequent amendment,
Investment Proclamation No. 375/2003). The corresponding respective regulations aimed at
implementing the two proclamations have also been changed. Accordingly, ‘Investment incentives
and investment areas reserved for domestic investors council of ministers regulations No.84/2003
(and its amendment regulation No.146/2008) was repealed by regulation No. 270/2012. Similarly,
export related incentives schemes underwent significant changes. Export Trade Duty Incentive
Scheme Establishing Proclamation No. 249/2001 was repealed by the Revised Duty Incentives
Schemes Proclamation No.543/2007 which in turn had been repealed and replaced by the current
Export Trade Duty Incentive Schemes Proclamation No. 768/2012. The change has also been made
to the directives meant for implementing the respective proclamations by both Ministry of Finance
and Ethiopian Revenue and Customs Authority.
Despite these efforts, Ethiopia’s export performance remained below target. Export growth had been
relatively remarkable in the period 2009-2013 and averaged 11.2%. However, this growth exhibited
a declining trend particularly in 2013 E.C. As The Ethiopian textile Industry Development institute
annual reports (ETIDI, 2009 to 2013), the average export growth in the period 2009 to 2012 falls to
11.17% with a negative growth (-5.83%) record in the year 2013 E.C alone. The export growth of
the textile and apparel sector also shows increasing in declining pattern. For instance the period 2009
to 2013 export growth rate shows 7.35%, 11.02%, 20.40%, 5.92%, and -5.83% respectively. (ETIDI:
report, 2009, 2010, 2011, 2012, and 2013).
Export incentive schemes are means to ensure economic development through accelerating industrial
growth of a country by catalyzing the export manufacturing industry so as to increase foreign
currency earnings. Reinforcing Value creation process of production through establishment of
system that enhance engagement in industrial sector which is not palatable for the individual
operators when compared to service and other sector where return on investment and technical
requirements to manage them is relatively easy. In line with that, different countries develop
different export facilitation programs to subsidize industrialists engaged in export business.

Ethiopia as a country following export led industrial policy but also currently looking forward to
substitute products incoming to the country by using capacity of local manufacturers keeping that
exporting industrial outputs is still being top priority for the development of the country because the
country’s only foreign currency earning is dependent on manufacturing output next to agricultural
products.

Ethiopia has offering different export incentives for industrial operators like Export trade duty
incentive schemes, income tax exemption for new business, income tax exemption for upgrading and
expansion of existing enterprise, exemption from custom duty for capital goods, raw material,
vehicles and spare parts, transfer of duty free imported goods to same privileged person and other
miscellaneous incentives.

This study intended to assess the effectiveness of the provided incentives for the export trade in
Textile and Apparel industry and to identify limitations, analyse global benchmark , recommend
appropriate incentive packages’ that can support the growth of export in the sector.

2. Statement of the need

Export trade is usually referred to the exchange of goods, and services across international borders or
territories. Exporting good & service is a phenomenon that will bring additional foreign currency for
the country, allow a country to further gain from economies of scale, reduce vulnerability to external
shocks, lower trade deficits, encourage technological development and help firm to keep
competitiveness in order to meet the rest of the international market while expanding their real
incomes. Exports boost profitability, improve capacity utilization, provide employment, and improve
trade balances (Barker &Kaynak, 1992).
Export promotion (EP) policies and strategies have long been used by many countries to boost
export and stimulate export led economic growth through the creation of internationally competitive
export sector.
Empirical works on the impact of export promotion policy show mixed results and the effectiveness
of the policy vary with other local context specific conditions. Diverse degrees of success in
different countries emanate from differences not only in the way policies have been designed and
implemented but also proper blending of other specific enabling conditions. Evidences also show
peculiarities of important success factors in early industrialized and newly industrialized economies
(NIEs). According to Rodrik (2009) South Korea’s and Taiwan’s industrial development would not
have been achieved without the respective government’s active interventions in coordinating public
and private investment, visionary political leadership and well developed human capital.
Ethiopia, efforts made to increase manufactured export has remained to be less effective due to poor
policy implementation capability (Gereeyesus and Demile, 2017) and flawed policy design (Assefa,
2010). However, there are evidences of encouraging progresses over recent years in some sectors
notably in the textile & apparel export. Staritz and Whitfield (2017) associates Ethiopia’s recent
achievement in textile & apparel export to the PTAs and the attractiveness of the general investment
incentives.
The main challenge of EPS would relate to:-
Government’s capability to effectively implement the strategies, fragile social and political
conditions, large and dynamic external markets, sustainable raw materials supply, cheap and
convenient transportation, easy access to seaport, and low shipping cost. Being landlocked country
with under developed infrastructure and weak institutional capability, Ethiopia would face strong
challenge to implement the EPS.
Effective implementation of the EPS calls for enabling internal conditions such as adequate
infrastructure, competitive production and costs, strong local production support capacity, favorable
labor and regulatory conditions, and economic relations to the regional and global production
networks. Experiences of successful countries indicate that effective implementation of EPS depends
on the respective government’s capability to build both the soft and hard elements of infrastructures,
identify specific challenges and taking counteractive measures in a coordinated and dynamic manner
and finally building a system that rewards developmental capitalists.
Ethiopia has had some successes in attracting foreign investment due to its fast-growing economy, a
large domestic market, industrial park opportunities, large infrastructure investments and tax
incentives in high-priority sectors. (Pathway to Prosperity, Ethiopia Case Study, Legatum Institute,
p.56) Among the attracting export trade incentives; Duty drawback scheme, Voucher scheme,
bonded factory, input supplier and manufacturing warehouse schemes, Franco-valuta, Industrial
zone schemes, duty free import, Export from exemption, external financing schemes, supplier credit
schemes, export credit grantee schemes, foreign currency retention account incentives and priority
service delivery is given by the government to encourage the investors. However, except the IP
scheme, export incentives have not been effective in increasing export due to; Firms have not
sufficient awareness on tax incentive rule, regulation and also procedure, export trade duty incentive
scheme is not fair and transparent, the customs authority service with the customs administration
provide poor service to their customers since the taxpayers did not get adequate and timely service,
properly and quickly service. (MuluGebreyesus&AshagrieDemile, 2017 P.45) Given this, the current
study was aimed at conducting a more comprehensive evaluation on Ethiopia’s export trade
incentive whether it is adequate or not and its effective implementations.
Therefore the following are the research questions that the study have tried to answer
1. How much sufficient the existing export incentives are to motivate existing exporters to
increase their exports and attract potential investors to the export sector.
2. What is the level of textile and apparel manufacturing industries awareness about export t
incentive schemes?
3. Concerning export trade incentive, how fair and transparent the scheme is?
4. What is the service quality level of export trade incentive schemes implementing government
organizations?
Consequently, this paper conducts to show challenges of export trade duty incentive scheme
administration, sufficiency and effectiveness on motivating export trade.

3. Objective of the study

3.1. Main Objective
 To assess the effectiveness of the provided export incentives and identifying the limitations
and shortcomings of them and recommend additional incentives to facilitate export business
in textile and apparel sector.
3.2. Specific objectives
 Assessing available operational incentives of export for textile and apparel industry
 Assess their sufficiency and effectiveness in facilitating export business in textile and apparel
sector
  To assess the awareness of textile and apparel manufacturing industries on export trade
incentives
 Identify countries to be bench marked and
 Recommending additional incentive packages that facilitate exportbusiness of textile and
apparel sector

4. Scope of thestudy

The scope of the study is on the assessing and identifying limitations and shortcomings of export
incentives and recommending additional export incentives to facilitate export business engagement
in textile and apparel sector. And the study includes stake holders like (MoTRI), (ECC), (NBE),
(EIC), IPDC, ETGAMA, Hawassa IP and Bole Lemi IP factory association and (MoFD);
associations in Industrial parks and manufacturers engaged in export business around Addis Ababa
and regions.

5. Limitation of the study

o The limitation of this study is unavailability of information regarding export trade
duty incentive scheme data and lack of researches carried out by scholars,
o Failure to pay transportation allowance on our destinations, it is difficult to collect the
needed data.
o Shortage of time due intervention by other unplanned office works.

Methodology and Data Source

Research Methodology
Research Design
According to a definition provided by Kothari (2004:31), a research design constitutes
decision regarding what, where, when, how much, by what means concerning an inquiry or
a research study is going to be conducted. In general, the work plan that states that; what
objectives will be achieve; from where the data will be collected and what types of will be
used tools. To achieve the objective of the study, the researcher use qualitative research
method since the researcher need lower level statistical instrument.
Sampling Techniques
The researcher will be used purposive sampling, because the target populations are known,
engaged on export trade, used export incentive schemes and it is convenient to use
proximity in data collection.
Sampling size
In order to have a complete picture of export incentives adequacy, effectiveness and
usefulness, we also conducted survey of 36 textile and apparel factories involved in export
and benefiting from the various export incentives as well as 9 respondents comprised of
stockholder institutions. These textile and apparel factories are selected based on their export
performance, the address of the firm industrial zone and out of industrial zone, chemical
and dyestuff suppliers, trim and accessory suppliers and traditional cloth producer. To this
end, we intended to use export data of the period 2013 E.C, exports’ list. A total of 33
factories consisting of respondents representing the textile and garment industry, one from
chemical and dyestuff suppliers, and 2 respondents from trim and accessory will be
interviewed. All of the firms to be interviewed are using more than one export incentives,
and export 50% of their products to various international markets. The rest will be select
from input suppliers, government institution, and other stakeholders.

Method of Data Collection

Types and Sources of Data
In this study both the primary and secondary data will be used. The primary data is
collected from Ministry of Trade and Regional Integration (MoTRI), Ethiopia Customs Commission
(ECC), National Bank of Ethiopia (NBE), Ethiopian Investment Commission (EIC), Industry Park
Corporation (IPDC), Ethiopian Textile and Garment Manufacturers Association (ETGAMA), Hawassa
and Bole Lemi IP Factory Associations and Ministry of finance (MoFD) directorate, process
owners, team leaders and officer’s trough Interview data collection instrument whereas
Questioner will be used to obtain information from textile and apparel export trade scheme
incentives Beneficiaries.
The secondary data collected from various internet sources, proclamations and magazines,
policy manuals, journals, from different published and unpublished reports, books, articles,
annual reports of national and international organizations, different research reports,
regulations & procedures and directives.
 Data Collection Instrument
To conduct this research, both primary and secondary data from different sources are used.
Concerning the data, one year data (2013) E.C of export trade duty incentives are analyzed
to show its impact on incentive. Questionnaire is the main instrument to collect information
from the target export trade duty incentive beneficiaries. The questionnaires comprise
mainly close ended and few open ended questions. In addition unstructured and structured
interview are conducted with relevant team leaders of (MoTRI), (ECC), (NBE), (EIC), IPDC,
ETGAMA, Hawassaand Bole Lemi IP Factory Association and (MoFD); for additional
information about the challenges export trade duty incentives scheme administration .

Method of Data analysis

After the data collected from both primary and secondary sources through qualitative
method, the results obtained are analyzed and interpreted using qualitative data analysis
tools. Descriptive statics are used to analyze the frequencies of respondents perception and
their level of agreement or disagreement with the given statement under each Liker type
Questions as well as for the analysis of the secondary data.

Allocated budget for the study

To conduct this study, the following expenses will be required. The major expense coverage aimed
for logistics accommodations and stationery materials in the course of the study.

S/ Activities Reason for the Expense Amount Sub

n in Birr Total
1 Preparation of research proposal by the study Transportation 0 400
team Stationery (Paper, Pen, Pencil) 250
Telephone & Internet connection 150
2 Data collection from different sources Transportation 15,000 81,000
Research team allowance 66,000
3 Carrying out different meetings with the Serving for tea and coffee etc 500 500
department experts for evaluating the paper
4 Carrying out different meetings with the Serving for tea and coffee etc 500 500
management for evaluating the paper for
appropriate direction
5 For carrying out validation meeting with Transportation 60,000 90,000
stakeholders (workshop) Rent for seminar room and 30,000
dining expenses
6 Getting the Research done by a consulting Payment for the Consulting firm 0 0
firm
Total budget 172,400
Table 01: Allocated budget for the study
S/No Description Time Frame
Start Date End date
1 research proposal 22/06/2014 07/07/2014
2 research design
Secondery data collacion 12/07/2014 26/09/2014
Primery Data collaction
Data Analysis and Discusion 29/09/2014 12/10/2014
3 Validation of the study
 Discuss each step with the department director 12/10/2014 16/10/2014
 Presentation to the Department Experts 19/10/2014 19/10/2014
 Presentation to the institute Management 21/10/2014 21/10/2014
 Presentation to the relevant Stake Holders 26/10/2014 26/10/2014
4 Application of the study
 Submit study to concerned entity for policy 29/10/2014 29/10/2014
initiation
 Follow up the status of its application Continuous