COLLEGE OF NATURAL SCIENCE AND COMPUTATIONAL SCIENCE

ADDIS ABABA UNIVERSITY

GEOGRAPHY GROUP ASSIGNMENT

Group Members ID Numbers

1. Rediet Woudma …………………………….…… UGR/ 4779/14

2. Rodina Mehammed ……………………………… UGR/ 5343/ 14
3. Selamawit Kassaye…………………………….… UGR/ 7492/ 14
4. Soliana Melaku ……………………….…………. UGR/ 6170/ 14
5. Sophonias Demiss …………………….…………. UGR/ 5998/ 14
6. Yared Bitewlign………………………..………… UGR/ 8680/ 14
7. Yared Getu ………………………………………. UGR/ 3249/ 14
8. Yerama Serawit …………………….……………. UGR/ 4984/ 14
9. Yishurun Abamo ……………………….………... UGR/ 0634/ 14
10. Yohannes Tesfaye ……………………………….. UGR/ 8429/ 14

Submitted to: Dr. Belete Ejigu

Submission date: July 7, 2022

 Introduction

In this paper we try to see about the manufacturing sector in Ethiopia; mainly the challenges and
opportunities in the manufacturing sector of Ethiopia. Manufacturing is critical and is probably
the most important engine for long-term growth and development. As countries transform from
primary agricultural-based economies to manufacturing based ones, more sustainable revenue for
growth is obtained. Manufacturing industry in Ethiopia started in 1920s with a simple processing
technology that produces agriculture-based products; but still the sector is at a low level of
development for reasons mostly related to poor quality and insufficient raw materials supply
from the domestic market. The challenges faced in the manufacturing sector of Ethiopia include
Lack of financial, Marketing problem, Technology related problem, Human resource related
problem, Input related problem and policy related problem. Cheap electricity, Cheap labor force,
export intensives, and Integral agro industrial park are some opportunities in the manufacturing
sector of Ethiopia.
 Manufacturing sector in Ethiopia

Manufacturing is the process of turning raw materials or parts into finished goods through the
use of tools, human labor, machinery, and chemical processing. In other ways we can define
manufacturing as a higher-level economic activity that changes commodities or primary
materials into consumable forms. In manufacturing process there is an addition of value.
Ethiopia started to change her investment from primary economic activity to manufacturing
industry in 1957 by initiating a series of five-year development plan. According to our
government the contribution of the industrial sector to the Gross Domestic Product (GDP) over
recent periods is only 11.7 percent. The Ethiopian large and medium size manufacturing sector is
dominated by food and beverages. It accounted for the largest proportion of the overall large and
medium manufacturing value added between 2000/01, 2010/11, and 2012/13 which was around
8 billion birr.

We can classify industries in Ethiopia in to two: The cottage industry and the manufacturing
industry. The cottage industry is a traditional industry that traces back to the history of Ethiopia,
it includes weaving, woodcarving, pottery, metal works etc. The cottage industry in Ethiopia has
been stagnant, and the major reason for this is the negative traditional attitude towards these
activities they were considered as a low-class activity and the people who do this work were
given names like ’buda’.

The development of manufacturing industries is measure of the development stage of countries.

In Ethiopia manufacturing industries are at a low level of development. In the past
manufacturing industries were concentrated in a few large towns. The largest industrial
concentration town is in Addis Ababa followed by Hawassa.

In the five-year development plan Ethiopia established Industrial Parks Development

Corporation (IPDC). There are four categories based on their focus sector: textile and garment,
leather and shoe, agro-processing, and pharmaceutical and IT park. There are around 24
industrial parks here in Ethiopia in which 4 of them are private parks and 4 of them are
regionally developed parks.
Industrial parks can be structured to bring together complementary services and features that will
benefit the companies that occupy space there.

Two kinds of industrial parks are being developed in Ethiopia: large, medium and light scale
industrial parks on the one hand, integrated agro-industrial parks on the other hand.

The large, medium and light scale industrial parks are expected to facilitate the situation for the
planned transition to the industry-led economy which would accelerate the manufacturing sector
and contribute to job creation, import substitution, strengthening export, and creating chance for
innovation. The business model of the IAIPs promotes efficiency of the commercial food supply
chain.

The challenges in Ethiopian industrial parks are identified as high labor turnover, inadequacy of
infrastructure facilities, poor trade logistics and customs procedures, lack of access to foreign
exchanges and weak linkages of IPs with local economy.

Ethiopia's aim in building more industrial parks is to enable the manufacturing sector to
contribute to 20 percent of Ethiopia's GDP and 50 percent of the export volume by 2025,
according to the Ethiopian Investment Commission.

Regional developed parks

1 Bure integrated agro-industrial park Amhara Agro-processing
2 Bulbula integrated agro-industrial park Oromia Agro-processing
3 Yirgalem integrated agro-industrial park SNNPR Agro-processing
4 Backer integrated agro-industrial park Tigray Agro-processing
Private parks
1 Eastern integrated agro industrial park Oromia Various
2 Huajian integrated agro-industrial park Addis Ababa Shoes, garment
3 Modjo integrated agro-industrial park Oromia Leather
4 Kingdom Linen integrated agro- Dire dawa Linen
industrial park
Challenges of the manufacturing sector in Ethiopia

 Lack of finance: the shortage of financial resources has been on for the major bottlenecks
for industrial development in Ethiopia. The manufacturing sector needs high logistics and
transportation cost. The possible source of this finance has been agricultural and non-
agricultural commodity producing sectors in the economy. The agricultural sector, which
is the mainstay of the Ethiopian population has not been capable of generating the
required surplus for the industrial sector, given its subsistence nature and backwardness.
The other commodity-producing sectors, especially the manufacturing industry, is
underdeveloped and most public enterprises are heavy users of foreign exchange. That is,
they are highly import dependent. This means that they have not been net savers and
hence have no surplus. Given such a low saving rate, it is difficult to undertake industrial
investment.
 Marketing problems;

-weak domestic demand for manufacturing output-this is due to the subsistence nature of
agriculture on which most of the people rely for food, etc. As a result, the purchasing
power of the people is very low.

- limited research/study and action on export incentives and market

- limited compliance to the international requirements and market

- lack of marketing information about both local and export markets

- strong competition from cheap imports

-underdeveloped rural infrastructure which limits the expansion of manufacturing

industries to the potential areas

-weak supply chain integration, market institutions and information system

- a consumer bias against local products.

  Technology related problems;

-lack of sufficient information on suitable technologies: this is related to the shortage of

local institutions involved in technological support services.

-The technology we use is capital intensive which is not recommended for our economy
where unemployment is rising

 human resource related problems;

-lack of skilled human power

-absence of industrial discipline and work ethics.

 input related problems;

-unavailability of local raw materials which is mainly due to the high cost and shortage of
foreign exchange for imported inputs and to the unreliability of domestic sources of
inputs and their poor quality.

 policy related problems include tariff rates, land policies, unfair arbitrary tax
imposition… which have hampered the development of the sector.

Opportunities of the manufacturing sector in Ethiopia

 Relatively cheap electricity charge in comparison to other African countries. For

example, Ethiopia has the relatively cheap electricity charge from the rest of the African
countries, Ethiopia’s electric charge is 0.02 us dollar per KWH for businesses which
includes all components of electricity bill such as the cost of power, distribution and
taxes. Rwanda presented the highest electricity price for house holding in Africa, one
kilowatt per hour costs around 0.25 us dollars.
 Relatively cheap labor force and increasing number of trained employees. Currently in
Ethiopia, there are many trained people who can get employed and work as professionals
and this results in cheap labor force.
  Access to wide market large domestic market, COMESA (Common Market for Eastern
and Southern Africa), AGOA (African Growth and Opportunity Act), EBA opportunities,
China market etc.
 Export incentives: there are two main interrelated financial export trade incentives
scheme provided by the government for exporters. Such as export credit guarantee
scheme and export credit scheme according to the directive of national bank of Ethiopia
of the export credit. Export credit is the method of financing exports.
 Integrated Agro-industrial parks: for example, one stop shopping for all the services,
economics of scale, extension services, development of common infrastructure.
 Private sector friendly governments can use mechanisms like taxes, levies, fees and
royalties to raise funding that allows financial support to be offered for climate risk
assessments; extension services; and start-up or seed financing for new products and
services.

Reference

 Geography of Ethiopia and the horn module

 https://en.m.wikipedia.org/wiki/Manufacturing_in_Ethiopia
 https://www.investopedia.com/terms/m/manufacturing.asp
 https://www.iisd.org/articles/government-private-sector-invest-adaptation
 http://Encyclopedia.com
 https://www.iiste.org/Journals/index.php/JAAS/article/download/54019/55827
 Economics grade 12 student textbook