Abstract

The recent economic growth in Ethiopia has not been accompanied by significant improvement in manufacturing shares of GDP and employment and thus a desired structural transformation. Yet certain studies have reported glimmers of hope on competitiveness the Ethiopian manufacturing. Using both qualitative and quantitative data, this study explores factors that have triggered the observed competitive performance or the lack thereof. We found that though Ethiopian manufacturing wages are small enough to compete against comparators in Asia and sub-Saharan Africa, poor labor productivity in the sector is eroding such an advantage. Furthermore, the main challenges to competitiveness of the Ethiopian manufacturing relate to poor public service delivery, limited capacity in the sector, and shortage of quality raw materials. Daily operation of firms is also deterred by factors such as frequent power breakage, limited access to credit, and lack of support industries, while excessive bureaucracy, lack of foreign currency and high tariff rates are deterring manufacturers from backward integration benefits of GVCs links. However, Ethiopia has got advantages- in form of abundant and inexpensive workforce, natural resources, closeness to global markets and growing domestic demand for manufactures- that could help boost competitiveness of its manufacturing. The government’s commitment towards development of the sector is an opportunity to seize upon. Yet more is desired in that government should keep on improving in areas of investment on human capital, infrastructure and industrial parks, its law enforcement capacity and incentive provisions, while private sector should exercise industry and export disciplines. Finally, though we didn’t observe clear cut causality between GVCs links and competitiveness, government’s enthusiasm towards vertical integration within manufacturing probably indicates its intention to nurture the whole supply chain domestically. Competitiveness might then depend on an ability to provide manufacturers with high quality domestic raw materials through the development of support industries, innovative capacity, and proper integration with agriculture.

Keywords: Manufacturing Competitiveness, Global Markets, Labor Costs, Productivity

JEL Classification: C43, D24, F21, L60