Friday, April 19, 2024
InterviewThe state of Ethiopia's economy: “Not much is happening,” says trade expert

The state of Ethiopia’s economy: “Not much is happening,” says trade expert

Kebour Ghenna, a renowned business leader and trade expert, has led both the Addis Ababa and Ethiopian Chambers of Commerce and Sector Associations. He has held managerial roles in international and local institutions.

With extensive experience leading local chamber of commerce associations, he now serves as Executive Director of the Pan African Chamber of Commerce and Industry (PACCI).

Kebour joined the political sphere with the Ethiopian Citizens for Social Justice (EZEMA) until leaving the party after the last national election

Samuel Bogale of The Reporter interviewed Kebour to discuss PACCI’s activities, his expert opinion on the African Continental Free Trade Agreement (AfCFTA), and his views on Ethiopia’s economic reforms. Excerpts:

The Reporter: Can you briefly explain PACCI’s background?

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Kebour Ghenna: PACCI was established in 2009 and began operating in late 2013. Since 2014, we’ve been promoting the African Continental Free Trade Agreement (AfCFTA).

How many members does the Chamber have and what has it done to promote regional integration among traders?

Though PACCI represents all 54 African nations, it is a small organization with limited resources. PACCI’s mandate is to promote trade between African countries and implement AfCFTA across the continent. Africa’s vastness challenges outreach so we rely on focal points. We provide information and organize workshops every two years to promote AfCFTA at national chambers of commerce and similar organizations in each country. Our engagement is large but limited in terms of resources.

Government officials say Ethiopia’s submission of offers of goods and services to the AfCFTA Secretariat was late. What factors caused the delay, from your perspective?

It’s a relatively new agreement that was signed, and signing an agreement of that magnitude is usually easier at the heads of state level. Implementing that at the ministerial and department level is challenging. Limited personnel and complex issues raised by various stakeholders can cause delays. While Ethiopia was not as rapid as others, we can’t say the country was really late.

There’s much to be done for the AfCFTA to work effectively, not just in Ethiopia but across the continent. Overall progress has been slower than anticipated. But we’re moving forward gradually.

The issue of lost duty income is the main excuse governments give for delays in action. Is it right for governments to rely heavily on duty incomes without proper focus on free trade?

When you speak about free trade in general, taxes are one element that shows there is no true free trade. This agreement aims to remove import tariffs between countries. But eliminating these taxes will impact all African countries, not just Ethiopia. Sometimes up to one third of their revenue comes from customs collections.

What we must realize is that trade between African countries will not happen immediately across all areas – it will take time. As it takes time, governments need to find ways to compensate for that lost income, either through additional taxes elsewhere or by expanding productive capacity to participate in the larger market and generate more revenue.

There is also support within the AfCFTA from the Afreximbank, which has allocated up to USD one billion to help countries facing this revenue loss. Yes, there will be declining revenue, but the AfCFTA is trying to alleviate that impact.

Is it justifiable that a country as large as Ethiopia delayed joining the AfCFTA? How do you view Ethiopia’s role compared to other African nations?

To be frank, only a few countries in Africa are well-positioned and organized to benefit from this common market. We can name them – starting with South Africa, Egypt, Morocco, and so on. They have more goods to export. For example, Morocco brings to the market over 80 different products, so there may be winners and losers.

When it comes to Ethiopia, we are among those not really producing enough to make an impact. Our economy is probably third largest in sub-Saharan Africa, but that does not signify much in terms of production capacity. We don’t really have the capacity to get to a level where we can be impactful in terms of export trade in other African countries. So there’s a lot that needs to be done.

What about gaining access to goods and services from neighboring countries instead of importing them from thousands of miles away?

The main purpose of the AfCFTA is expanding intra-African trade, but to do that, infrastructure is also crucial. We need well-built, highly secure rail and road systems.

I believe building infrastructure, especially in neighboring states, is essential for Ethiopia to benefit from the AfCFTA. Currently, we still do commerce with Djibouti, some with Somalia and Kenya. We also do business with South Sudan and Sudan, but to a lesser extent – all because of insufficient infrastructure.

You mentioned the support from Afreximbank. Why didn’t initiatives like this encourage countries like Ethiopia to act quickly?

I think this question should be directed to government officials responsible for these matters. One has to understand between the signing in 2018 and start of operations in 2021, we had the COVID-19 pandemic.

Since 2021 until now, I don’t think any major trading has occurred under the AfCFTA. About three or four months ago, the Secretariat selected eight countries to pilot trading.  In terms of countries not taking advantage, we have not reached that stage where customs issues have been raised, as customs processes need adjustment to better serve AfCFTA business operators. This has only been accomplished by a handful of countries – no more than three or four.

Which products do you think Ethiopia needs from neighboring countries?

The continent itself has much to do in terms of production. We mainly bring similar goods to market. The idea is not to compete among ourselves for a small market – you need to produce. For Ethiopia, we import large quantities of fuel. We may need more food, which Africa is well-positioned to provide. But instead of importing African food, we should produce it domestically and try to add value to export to neighbors and beyond.

For basics like medicine, some countries like Algeria, Egypt or South Africa have advanced pharmaceutical industries. These are places we could look to import some essentials we’ve bought from overseas for decades.

Which products can Ethiopia be dominant in exporting?

First, Ethiopia still has a long way to go to feed its own population – there is untapped internal demand. But we can start exporting products like sugar and its derivatives. This is a project underway for some time, though not very successful yet from my understanding.

Coffee is another product we know how to produce and market well. Vegetables are also an area of potential. There are several goods Ethiopia already produces and exports that we are now trying to expand and sell more to East, West, North and Southern Africa.

Do you think this agreement will impact Ethiopia’s trade with non-African countries?

No, I don’t think so. We need to expand markets overall. With this limited thinking that the market is just what it is now, we won’t progress. With a small factory in Akaki, you can now reach bigger neighboring markets without import duties. It’s like selling from Akaki to Nairobi versus Akaki to Bahir Dar – an opportunity for Ethiopian businesses to prosper, but government must understand what they need.

Is the private sector ready for agreements like the AfCFTA?

Frankly, the private sector is unaware of the details of AfCFTA – not just in Ethiopia. Across the continent, many African businesses lack information on what the agreement offers.

Yes, much promotion is needed. We try at PACCI, but more effort is required. To sell to Kenya, you need to understand that market – travel there, talk to businesses about their needs. Pushing an Ethiopian product may not work.

What about claims that production should be the focus over AfCFTA advocacy now?

It’s a chicken-and-egg issue – which comes first? Production would push countries to come together. But agreements can also encourage production to take advantage of them. I don’t know if now’s the right time, but with 54 signatories, we must leverage the opportunity.

Are Western countries genuine in their support of the Agreement given Africa’s importance as a buyer?

This isn’t the only trade bloc. They have their own agreements. Yes, Africa’s a major buyer, but what we’ve sold to Europe is natural resources. Using those to produce value-added goods for any market is key. Resources can be manufactured here and sold back, not just to Africa but the West too. The agreement promotes capacity to access markets beyond the continent as well.

The continental free trade agreement is not just an agreement that promotes trade within Africa; by expanding your capacity to produce, you can go beyond the continent and try to access other markets. It isn’t something that the AfCFTA precludes you from doing. It gives you the strength to expand your market beyond the continent.

What is your take on recent reforms such as liberalization, privatization and deregulation?

There was a moment when the previous regime, the Derg regime, literally took over the day-to-day business operations, from baking bread or biscuits to distributing sugar. That has changed, and many of those businesses that were run by the government have been privatized.

I’m not really into the perspective that businesses would require ownership changes from public to private. What is rather needed for businesses is to remain in the public’s hands and improve their management to better serve the population.

We can mention telecom, for example, which for me is a strategic sector. Even in European countries, whether we like it or not, the sector still has government ownership through shares, holdings, or other means. It is not really something that has been left entirely to the private sector. If the service isn’t good, you can introduce another player—an external player—to compete for better service.

In my opinion, that is one way to keep ownership of a sector. It was a sector that has been supported by governments for generations, and it’s still serving the public to a great extent and very reliably.

There is room for improvement, but I don’t think that requires a change of ownership. It is the same thing with Ethiopian Airlines. It’s one of the most successful airlines, whether we like it or not. We have seen Kenya Airways be successful initially when it was in the government’s hands, but then it was privatized. Kenya Airways is now literally going back into the government’s hands. Why disturb something that is working well? What are they actually going to improve?

How else can the government resist international financial institutions influence?

The conditions of international financial institutions are the conditions that we have brought upon us, because we have gotten loans for projects that were not really performing.

Let’s take sugar as an example, for which we borrowed about USD one billion. Did we actually need to borrow USD one billion to plant sugar cane? No. Not only was it mismanagement that happened, but it wasn’t really a strategic issue to start with. So that brought in difficulty because we couldn’t pay the loans.

The lender will now come to you and say they are going to give you more money, but to be sure that they will be paid, they force us to do this and that. This is something that we brought upon ourselves.

Let’s try to sell the Anbessa City Bus service. Do you think that private operators or private investors, let’s say from France, will come and buy that service? No, because there is no money there. They will come when there is money—not just now but for generations.

Look at the beer factories. Why were there so many interests in the beer factories? It is like they produce water and sell it to you. I am not saying that it should have been kept under government control. I think identifying what should be privatized and what should not be privatized was the best move the government had made.

You do not seem optimistic about the progress of reforms, including reforms related to financial sector regulations?

There is no reform in Ethiopia. Ethiopia probably implements less than 100 reforms a year on various issues, including regulations. But in other parts of the world, even on this continent, countries implement 600 to 700 regulations annually to encourage businesses and change directions.

The banking regulations enacted to attract foreign banks are still incomplete, but the government thinks it has made enough changes to attract international banks. We have a long way to go if we really want to attract development-oriented banks. We need banks that invest in development, not just take deposits and leave.

How do you assess the economic liberalization that the government says it is implementing?

From what I understand, there is some opening in the banking sector that is yet to be visible on the ground. This has happened since Prime Minister Abiy Ahmed’s (PhD) government came to power. There has also been some reform in the telecom sector allowing two new operators. What else? There are no major reforms happening in the country’s economy.

We claim we are making a lot of reforms but we need benchmarks to assess that. In reality, not much is happening in terms of economic reform in Ethiopia.

[speaker]
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