Tuesday, April 16, 2024
BusinessImport substitution strategy targets localizing key manufacturing within 3-10 years

Import substitution strategy targets localizing key manufacturing within 3-10 years

In a bold move to significantly cut its import dependency, Ethiopia has unveiled a national plan to reduce reliance on foreign-made goods over the next decade.

Dubbed the “National Import Substitution Strategy”, the 131-page blueprint drafted by the Manufacturing Industries Development Center, which is under the Ministry of Industry, targets 15 sectors critical to import independence, including vehicles, aircraft parts, chemicals, plastics, steel and sugar products.

According to a draft obtained by The Reporter, replacing imports in sectors like autos and machinery could take up to 10 years due to the enormous investments required to scale up local manufacturing capabilities. Sectors like sugar and food processing may see substitutions rolled out within four to 10 years.

If successful, the ambitious strategy aims to drastically reduce Ethiopia’s multi-billion dollar import bill and reliance on foreign goods – positioning the country for stronger domestic production, exports and job growth over the coming decade.

The import substitution strategy conducts in-depth analyses of the potentials and challenges associated with replacing each imported item. It emphasizes that Ethiopia’s economy cannot sustain its high level of imports over the long-term due to the sizable USD 16 billion trade deficit. The document also flags large external debt obligations and increasing debt maturity dates as pressing concerns. 

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With regards to basic iron and steel, the strategy notes that domestic production would require extracting or processing iron ore.

It explains that an iron ore extraction project would constitute a mega-project, potentially even more costly than the Grand Ethiopian Renaissance Dam (GERD). As such, the document does not foresee such an endeavor starting in the short-term, even if it did commence promptly.

The report further states that attaining production volumes to substitute imports would be a lengthy process. It adds that very few companies have attempted investing in cold rolling processes (thickness reduction) to date.

There are sectors and items whose imports could be substituted in the medium term, which is defined as four to seven years. These include food and beverage, textile and apparel, leather and leather products, and construction materials, which are slated to be substituted during the medium-term plan.

The third category covers the short term period of up to three years. Items in this group include electrical transformers, iron or steel wire cloth, female sanitary pads, diapers and wipes, furniture and parts, packing lids and containers, tyres, plastic tubes and fittings, cotton neither carded nor combed, and enriched foods.

Once consultations with stakeholders are completed and the strategy is validated, implementation is expected to begin this year, according to officials at the Industry Ministry.

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Video from Enat Bank Youtube Channel.

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