Wednesday, January 18, 2023
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BusinessIPs export 85% below potential, World Bank

IPs export 85% below potential, World Bank

– Local inputs constitute just 5%

-Tigray conflict, COVID-19 reduced IP exports by 45%

Industrial parks in Ethiopia are utilizing resources far below their capacity, a new World Bank policy report revealed.

The study, titled “On the Path to Industrialization: A Review of Industrial Parks in Ethiopia,” revealed that Ethiopian industrial parks are only employing 19 percent of their employment capacity while realizing only 15 percent of their export potential.

If the parks are fully operational, they might employ 300,000 people and create USD 1.3 billion in exports annually—more than coffee, oil seeds, and cut flowers combined, according to the report.

The study is based on nine public parks, excluding the four that were closed during the Tigray war.

The combined export performance of the industrial parks for last year, according to the Industrial Parks Development Corporation’s (IPDC) report, stood at USD 196 million, while overall employment stood at 57,000 people, despite the government’s target of 75,000 for the year.

The 174-page report concludes that if the growth rates of the last five years are extrapolated, the IPs’ export earnings will be higher in 2027 than the total of the three biggest agricultural exports.

The parks have set a USD 322 million export revenue objective for fiscal years 2022–2033. However, its annual export revenue remains below USD 200 million.

Several factors are inhibiting the industrial parks’ full capacity utilization. If export growth had continued at the same average annual rates as in previous years, exports were expected to reach USD 260 million in 2020-21, according to the report. COVID-19 and the Tigray War have reduced the export potential by 45 percent (or USD 120 million) by mid-2021.

Within the current stock of existing IPs, job creation could have grown by a factor of five.

However, the country’s recent insecurity and the loss of African Growth and Opportunity Act (AGOA) trade privileges brought these optimistic scenarios into question, implying a weaker growth trajectory or, worse, a reverse of recent advances.

AGOA skewed textile exports significantly toward the United States, going from 10 percent in 2014 to 69 percent in 2019, the report says. Around 70 percent of Ethiopia’s garment exports are to the United States. Under AGOA, an estimated 56,000 jobs are reliant on US exports.

The war in Ethiopia’s north has also resulted in the immediate closure of four parks, accounting for six percent of park jobs and nine percent of overall park exports. One major investor in Hawassa IP recently announced the closure of their factory, citing the escalating war.

On the other hand, most of the raw materials used by industrial parks are imported, which affects their performance because they lack sufficient foreign currency to acquire raw materials.

At the moment, the majority of parks is in the cut-and-sew section of the garment value chain, with only around five percent of the inputs used by IP investors supplied domestically.

The lion’s share of the imports is fabric and trims, which have been proven to be viable for Ethiopian production. Creating these upstream connections will create jobs and alleviate Ethiopia’s foreign exchange shortages.

It will also strengthen Ethiopia’s value proposition to consumers and manufacturers by improving pricing competitiveness, market speed, and flexibility. While developing local supply chain links takes time, the considerable benefits they would bring in terms of job creation and technology transfer merit immediate consideration.

The research included numerous recommendations for making the most of the IPS, including attracting new investors, boosting the local supply chain, and expanding the number of markets.

Regaining AGOA benefits is still in the works. Even if it is restored, it will be insufficient because the privilege will expire in 2025.

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