Tadesse Haile is one of the veteran government officials who has been serving for the past two decades in various posts of duty. In the early days, during the transitional government period, formed immediately after the downfall of the military regime, Tadesse was commissioner of the then Ethiopian Investment Commission. From then on, he had been in offices of public agencies and ministries. Before the split of the former Ministry of Trade and Industry up to the existing Ministry of Industry, he has been serving as state minister. In the ministry he leads the manufacturing sector where the likes of textile and apparel, leather and leather goods together with footwear manufacturing subsectors are the prioritized segments of the industry he leads.
He underscores these prioritized sectors are about to make major turnarounds as the government is setting up all cornered facilities and infrastructures. Not to mention the highly publicized Hawassa Eco Industry Park which will generate USD one billion dollar export revenue and create some 60,000 jobs alone is one of the textile sector is looking ahead for huge turnouts. Five more parks are in the making and soon, perhaps nine months later, will join the manufacturing sector, he notes. Yet, for long the manufacturing sector has been achieving below targets. Tadesse admits that the manufacturing sector passed through many ups and downs and remained in transition until recently; that in fact has contributed to low level of achievements in the past.
Asrat Seyoum of The Reporter sat down with Tadesse to learn the trends of the manufacturing sector, the institution’s role that were set up to smoothen and facilitate the performance of the sector and the current political unrest and its impact on some of the FDI companies. Excerpts:
The Reporter: In the past seven to eight years, the manufacturing sector had two major faces. The first one is the development of the sector where it has registered some twenty percent annual growth rate. On the other side, the sector has consistently missed its export targets during the period in question. So, what would one make of this contradiction?
Tadesse Haile: As we all know, the manufacturing sector plays a significant role in the development and transformations of the country. This is clearly stipulated in our GTP plans. The industry plays a very crucial role to realize the country’s aspirations to transform it self from an agrarian economy to an industrial nation. In this regard, if we want the industrial sector to play its role satisfaction by it should be developed. When we say it should be developed, it means that the development should be in terms of production and export capacity. This is mainly because the export sector is very important for the development of the industry; so export should develop equally. Therefore, according to the growth and transformation plans of the country, it is fundamentally believed that the industry sector is very critical to realize the dreams and aspirations of the nation.
And hence, the government is committed to this and it has put in place all the necessary regulations, policies and favorable working environment. As it was mentioned earlier, though the sector has registered an impressive growth in the past seven years, the export side is not as it is expected to be. Manufacturing export has not achieved its goals during this period. In this regard, what you have said is correct. To begin with, manufacturing exports need to be competitive in terms of quality, price and other factors, such as capacity and productivity. Therefore, the distance that we have travelled so far is mainly focused on the expansion of the industrial sector. Of course, we have undertaken a number of activities to ensure our competitiveness. For example, for the development of the industry, there are areas which are prioritized as a sector. We have tried to focus on some sectors which we have identified to be sectors where we hold a comparative advantage: such as textile, leather and food processing.
During that period, we were able to diversify our production and increase our production capacity. If we take leather, for instance, previously leather was exported as a raw material. The bulk of our leather export consisted of even unfinished products. Now, we are able to export processed leather. In fact, we are exporting value added leather products such as shoes and gloves. If you look at this, from the perspective of development, it is the result of efforts which we were making in the past seven and eight years. Therefore, in this regard, building our capacity is an ongoing process. We have also established different institutions to support some of these priority sectors which are deemed important if manufacturing export is to take off. And we are also in the process of creating technological capacity as well. However, it is a working progress; the export sector has not yet achieved its target. Therefore, weakness in technological capacity building, management capacity and marketing issues can be mentioned as a challenge to achieve these targets. Apart from these challenges, the capacity of the foreign investors who came to Ethiopia, previously, was not as we had expected. Now, we have altered our strategic approach. The new direction is to be selective when we approach investors. We have said that quality should be number one priority. We want to attract investors who have the capacity, competitiveness and a proven track record of producing items that the global market wants. This is believed to be vital to the transformation of the sector. There are also weaknesses in terms of attracting domestic investors to the manufacturing sector with the desired number and capacity. Of course, there are domestic investors who have joined the manufacturing sector; but the number is not yet enough. There are various reasons for this; sometimes there is a problem in providing sufficient land to investors, lack of infrastructures and failures from the side of the companies themselves to commence production within a planned period of time.The strategy change that we brought about now is focused on building industrial parks in different parts of the country. Building industrial parks will help us in providing the necessary infrastructure and support facilities at one place. It will reduce the time to obtain land, which is already ready for production with the necessary infrastructure. In this regard, what we have to do now is recruit and select the most competitive and effective companies to join these parks; we have to do our due diligence properly. Due diligence is not a simple task; in fact, our capacity to deal with this issue is also limited. The due diligence that we are conducting now is from the perspective of buyers; we are doing it based on the information we have received from buyers. It is all about the standards and the demands of the buyers.
There is a significant improvement in the local market in recent years especially in terms of the leather products like shoe. There have been big changes in terms of quality, price and availability in the local market. Do you think the local market is competing with the export destinations? Have you considered the possibility of the attractiveness of the local market might have affected the export performance?
By the way, the local market is highly protected. Secondly, if you take the local market the purchasing power of the society and the attitude towards quality is not that much sophisticated. Our local market has the tendency to absorb any product which is thrown at it. Though it varies from country to country, the international market in general is highly sophisticated. European market is difficult to break into whereas the US market is somewhat flexible. It absorbs all products from low to high qualities. Meanwhile, the Japanese market is the most difficult one. It is highly quality conscious. Therefore, the tendency to lean to the local market is because of the laxity of the local market in terms of quality. The products that you produce for the foreign markets should meet certain standards and qualities and it is strict in terms of delivery time. Therefore, if you miss one of these requirements, the order will be scrapped, whereas the local market will accept it. Sometimes, the local market is higher than the international market, if you look at the price of the shoes, for instance, some manufacturers in the international market sell their products at10 dollars (220 birr) while the price in the local market ranges from 600 to 700 birr. The price at the local market is three times the international price. The biggest reason here to focus on international markets is that the local market is limited. The global market is more sustainable compared to the local one. The local market first is small and secondly the purchasing power compared to the global market is limited. We hope that the change in strategy and the focus on industrial parks will alleviate these problems.
Concerning the foreign market strategy, it has always been striking to me that you want to focus exclusively on the international markets. But, you don’t usually talk about African markets. Our products, especially shoes, are highly demanded at least in Eastern African markets. So, how come you are not interested in the continental market?
As you have said, African markets have high potential. It should be considered especially in regard to leather products and the shoe sector. Once, I went to Kenya and discussed matters with the sellers of contraband Ethiopian shoes there. I asked these vendors why they don’t use the proper channel to import shoes since contraband goods have their own risks? And in this regard, I arrange for them to visit Ethiopia and the shoes manufacturers so that they will work via the formal channel. Now, there is a shoe factory that supplies the shoe market in Kenya and earns at least 200 thousand USD monthly. As you have said earlier, there is a potential market in the continent and we are also promoting it; but it has different barriers. Above all, Ethiopia is not a signatory party to the Free Trade Agreements such as the COMESA. Therefore, if we want to export to those countries it will be subjected to taxation. For now, the biggest market is Europe and America. Of course, we have to consider both the Asian and Middle Eastern markets too. If we consider improving the situation to penetrate the African market, we have to equally know the barriers, such as transportation, infrastructures and so on. In fact, you have raised the issue of shoes, however, we also have a comparative advantage in the textile and garment sector in the African market. We are considering it. Now very huge companies are coming to the country, therefore they need a market, and hence they need the African market. However, it is very difficult to achieve the desired goals with the existing infrastructure. Infrastructure is a bottleneck for this.
Concerning the export targets in the manufacturing sector, there seems to be confusion as to what they mean. Since most of these targets are missed consistently, some people ask if they are set just as mere expressions of ambition or real goals. What is the source of this mismatch over the years?
Of course, the assumption was that many foreign investors will enter the market. And those who have joined the sector will also go to production quickly. Sometimes, when you set a target it should be associated with the goal that you plan. It is not wishful thinking, because export is critical for us. If we want to bring transformation to the country, our production capacity and manufacturing quality should be improved and, of course, we should be able to achieve the target we have set for exports. It is when these all requirements are fulfilled that the macro economy of the country will be stable.When we say this, as I mentioned earlier, many foreign investors were expected to come to Ethiopia. Because by using only the existing foreign investors and whatever productivity and efficiency they have, it is impossible to achieve the desired goals. Therefore, transformation will be achieved through inviting new foreign investors. It is always a difficult task to attract new foreign investment and helping them start production. Now, we have the solution: the solution is industrial parks. By developing industrial parks, we are working to bring qualified foreign investors with proven track records with an exclusive focus on foreign markets. The application of industrial parks is giving lights to the sector.
Coming to other issues, you are focusing on the leather and textile sector, the approaches that the Ministry of Industry follows prioritizes these sectors and establishes institutions to support the sectors. However, if we look at leather as an example, still there are serious problems in value and supply chains. So, how do you evaluate these institutions? Have they achieved their targets?
By the way, what makes the Ethiopian industry structure different from others is that it establishes support institutions for those sectors which are prioritized. This is not practiced in many African countries; perhaps this is a very good lesson that we draw from the Koreans. It is under the Ministry of Industry. However, the ministry has different arms. Therefore, the ministry, by using these different arms, tries to bring tangible change to the industry sector. The establishment of some of the sector support institutions takes some time. Therefore, in this regard, the first thing we do is building their capacity. But, that doesn’t mean establishing sector support institutions will bring change by itself. To perform their mission, it is very necessary to build their own capacity. In order to build their own capacity, the government is doing its best; first the government is working on twining the local institutions with other international institutions. For example, we are twining our institutions with institutions that have proven capacity, experience and track record in the world. For instance, we are twining our leather sector with Central Leather Research Institute of India (CLRI). It is a well-known and old institution of leather research.There is also another institution of India focusing on shoes, which is called Footwear Design and Development Institute of India (FGDI). We are twining our institutions with these institutions. If we wait for our institutions to follow their own development path and start giving productive services, it is going to take them at least 50 years. This is the rationale behind the concept of twining. Therefore, what we are trying to do is to draw a lesson within a short period of time from the ups and downs of other institutions in the past years than wait to experience the ups and downs by ourselves. It is also aimed at building the capacity of the sector support institutions within short period of time so that they can build the capacity of the prioritized sectors. Especially, it is focused on nurturing more local investors in a short period of time since foreign investors are expected to bring in their own capacity, technology and management. It only needs facilitation and service from the government. Therefore, by twining with these institutions we are working on building the capacity of the institutions. Their primary mission is providing trainings. Although providing training is something that is left to higher learning institutions what they are dong is just twinning the trained one with the field. The other is that conducting research and development, consultancy and testing services by establishing internationally accredited institutions. Another task is bench marking, to draw a lesson from best practices with foreign consultants. At the beginning, these institutions were offering certification and then diploma courses, and now since they are not higher learning institutions they are forming linkages with universities to sponsor B.SC degree program in leather technology. The curriculum development was undertaken by the sector support institutions or with our twining partners. All of this is because of these institutions. By the way, the institutions are doing a very great job in human resource development and research development. Therefore, if we take a look at it in detail it is successful; the leather industry is so successful but now the textile institute is also becoming rapidly successful.
Allow me to take you to the recent unrest in the country. According to the government and some of the companies, the protests in Oromia and Amhara regions have cause great destruction to companies in the manufacturing sector. Concerning FDI in manufacturing, do you have data that can show the extent of the damage? Do you have a rough estimate of the destruction in terms of monetary value?
We have made a survey and tried to visit the companies that were affected by the protests. The companies that suffered the most were foreign companies, especially residing in Sebeta and in some localities around Mojo area. In the textile sector, there is one Ethiopian company called Totot, which has suffered badly. This company sustained total destruction. What aggravated the devastation was that there was a huge amount of raw textile materials in the store; so it was torched. The other thing is that due to the problem in connection with the Irrecha festivity, the workers of most of these companies were absent from work. Therefore, apart from the destruction to properties in some areas it has also created unrest among the workers.The extent of the destruction is totally devastating. If we look at other companies, such as BMET cable factory, the majority of the destruction occurred on office facility and office equipments. When it comes to the factory itself, the damages look less. Another company that suffered the destruction is a textile company owned by Ethiopian and Chinese investors called Mina, which had just installed sophisticated machineries form Europe and Japan. This company is an extension of ArbaMinch Textile Factory and it was on a commissioning phases when destruction happened. They were getting prepared to start production. According to reports, the destruction first occurred on the windows and then it was totally burned down the paper cone manufacturing machineries with all of its raw materials and company vehicles; the rest was not affected. In the same company, the protesters also destroyed the residence of the Chinese professionals located in the premises of the company. Another company that was affected by the protest is a water tanker factory; the store of the raw material and finished materials on the ground was burnt down. Ethiopia tannery, which is located at Mojo, is another one affected by the protest. The clinic of the company and the cars were totally burnt down. They also burnt down cars in the premises of Meta Brewery. Nevertheless, we are trying to assess the real damages. The companies have presented some of the estimates of the damages but some appear to be realistic while some are a bit exaggerated.
The government had stated that it established a committee to assess the level of the damage and will pay compensations to the companies. However, apart from paying compensations, there are also suggestions about offering some incentives and privileges such as duty-free access to import machineries.How are you going to deal with this?
This is going to be decided by the government, there is an issue of compensation. However, there is going to be a direction which will be provided by the government and which I have not receive yet. Whatever the case, the government is encouraging the companies to start their production quickly. The government is also showing its willingness to support the companies so as to regain their production. The package to deal with the issues of compensation and privileges is in the pipeling; therefore the government would decide about the situation after finalizing the package.