Manufacturing in Ethiopia
Encyclopedia
Manufacturing in Ethiopia was, before 1957, dominated by
cottage and handicraft
industries which met most of the population's needs for manufactured goods such as clothes, ceramics, machine tools, and leather goods. Various factors - including the lack of basic infrastructure, the dearth of private and public investment, and the lack of any consistent public policy aimed at promoting industrial development - contributed to the insignificance of manufacturing.
initiated a series of five-year development plans. Throughout much of the 1960s and early 1970s, manufacturing activity increased as the government's five-year plans diversified the economy by encouraging agro-industrial activity and by substituting domestically produced goods for imported items. Thus, according to the World Bank
, manufacturing production increased at an annual rate of 6.1 percent between 1965 and 1973. During the same period, agriculture
grew at an annual 2.1 percent rate, and services grew at an annual 6.7 percent rate. Despite this favorable growth rate, manufacturing in 1975 accounted for less than 5 percent of the gross domestic product
(GDP) and employed only about 60,000 people. Handicrafts, such as weaving, pottery, blacksmithing, leather working, and jewelry making, along with other small-scale industries, accounted for another 5 percent of GDP. In 1984/85 manufacturing and handicrafts together accounted for 11.4 percent of GDP.
nationalized more than 100 industries and took partial control of some of them. The main characteristics of the manufacturing sector inherited by the revolution included a predominance of foreign ownership and foreign managerial, professional, and technical staffing; heavy emphasis on light industries; inward orientation and relatively high tariffs; capital-intensiveness; underutilized capacity; minimal linkage among the different sectors; and excessive geographical concentration of industries in Addis Ababa
, Ethiopia's capital city.
and demonstrations also closed the approximately 30 percent of the country's manufacturers that had been located in that region.
, and local strife in many areas disrupted production and hurt productivity. Zemecha production campaigns, which focused on increasing capacity utilization, characterized the late 1970s. As a result of these campaigns, Ethiopia achieved growth rates of 27.3 and 10.5 percent, respectively, in 1978/79 and 1979/80. By 1985 capacity utilization estimates of many industries ranged between 70 and 100 percent, and many plants operated in three shifts. These figures were high by African standards.
Manufacturing productivity began to decline by 1980 because of a downturn in agricultural production and a shortage of foreign exchange
to import raw materials. Analysts expected the manufacturing sector's productivity to decline further in the 1990s as equipment aged and spare-parts shortages grew. In response to the downward trend, in 1987/88 the government planned to invest 342 million birr
in industrial enterprises to increase production capacity. In 1989 the government issued Proclamation No. 11, which set forth policies intended to attract foreign investment.
announced the replacement of Ethiopia's socialist economic system with a mixed economy
. Among the proposed changes were that private investors would by permitted to participate in all parts of the economy with no limit on the amount of capital invested.
cottage and handicraft
Handicraft
Handicraft, more precisely expressed as artisanic handicraft, sometimes also called artisanry, is a type of work where useful and decorative devices are made completely by hand or by using only simple tools. It is a traditional main sector of craft. Usually the term is applied to traditional means...
industries which met most of the population's needs for manufactured goods such as clothes, ceramics, machine tools, and leather goods. Various factors - including the lack of basic infrastructure, the dearth of private and public investment, and the lack of any consistent public policy aimed at promoting industrial development - contributed to the insignificance of manufacturing.
Five-year plans
In 1957, EthiopiaEthiopia
Ethiopia , officially known as the Federal Democratic Republic of Ethiopia, is a country located in the Horn of Africa. It is the second-most populous nation in Africa, with over 82 million inhabitants, and the tenth-largest by area, occupying 1,100,000 km2...
initiated a series of five-year development plans. Throughout much of the 1960s and early 1970s, manufacturing activity increased as the government's five-year plans diversified the economy by encouraging agro-industrial activity and by substituting domestically produced goods for imported items. Thus, according to the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
, manufacturing production increased at an annual rate of 6.1 percent between 1965 and 1973. During the same period, agriculture
Agriculture in Ethiopia
Agriculture in Ethiopia is the foundation of the country's economy, accounting for half of gross domestic product , 83.9% of exports, and 80% of total employment....
grew at an annual 2.1 percent rate, and services grew at an annual 6.7 percent rate. Despite this favorable growth rate, manufacturing in 1975 accounted for less than 5 percent of the gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP) and employed only about 60,000 people. Handicrafts, such as weaving, pottery, blacksmithing, leather working, and jewelry making, along with other small-scale industries, accounted for another 5 percent of GDP. In 1984/85 manufacturing and handicrafts together accounted for 11.4 percent of GDP.
Nationalization
In 1975 the DergDerg
The Derg or Dergue was a Communist military junta that came to power in Ethiopia following the ousting of Haile Selassie I. Derg, which means "committee" or "council" in Ge'ez, is the short name of the Coordinating Committee of the Armed Forces, Police, and Territorial Army, a committee of...
nationalized more than 100 industries and took partial control of some of them. The main characteristics of the manufacturing sector inherited by the revolution included a predominance of foreign ownership and foreign managerial, professional, and technical staffing; heavy emphasis on light industries; inward orientation and relatively high tariffs; capital-intensiveness; underutilized capacity; minimal linkage among the different sectors; and excessive geographical concentration of industries in Addis Ababa
Addis Ababa
Addis Ababa is the capital city of Ethiopia...
, Ethiopia's capital city.
Exodus of foreigners
Following nationalization, there was an exodus of foreigners who had owned and operated the industrial enterprises. The war in Eritrea and labor strikesTrade unions in Ethiopia
The trade unions of Ethiopia have a total membership of approximately 300,000. Over 203,000 are members of the Confederation of Ethiopian Trade Unions ....
and demonstrations also closed the approximately 30 percent of the country's manufacturers that had been located in that region.
Economic dislocation
The economic dislocation that followed the revolution had a significant impact on the manufacturing sector. Private sector capital investment ceased, and labor's marginal productivity began to decline. In performance terms, the manufacturing sector's output after 1975 grew haltingly. Manufacturing had grown at an average annual rate of 6.1 percent between 1965 and 1973. A period of decline from 1974/75 to 1977/78 and an average annual growth rate of 18.9 percent for 1978/79 and 1979/80 were followed by a reduction of the growth rate to about 3.1 percent per annum between 1980/81 and 1984/85 and 3.8 percent per annum from 1985/86 to 1988/89.Manufacturing productivity
The manufacturing sector's performance paralleled developments in other parts of the country. In the revolution's early days, the dislocation caused by nationalization, the flight of managers, the wars in Eritrea and the OgadenOgaden
Ogaden is the name of a territory comprising the southeastern portion of the Somali Regional State in Ethiopia. The inhabitants are predominantly ethnic Somali and Muslim. The title "Somali Galbeed", which means "Western Somalia," is often preferred by Somali irredentists.The region, which is...
, and local strife in many areas disrupted production and hurt productivity. Zemecha production campaigns, which focused on increasing capacity utilization, characterized the late 1970s. As a result of these campaigns, Ethiopia achieved growth rates of 27.3 and 10.5 percent, respectively, in 1978/79 and 1979/80. By 1985 capacity utilization estimates of many industries ranged between 70 and 100 percent, and many plants operated in three shifts. These figures were high by African standards.
Manufacturing productivity began to decline by 1980 because of a downturn in agricultural production and a shortage of foreign exchange
Foreign exchange market
The foreign exchange market is a global, worldwide decentralized financial market for trading currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends...
to import raw materials. Analysts expected the manufacturing sector's productivity to decline further in the 1990s as equipment aged and spare-parts shortages grew. In response to the downward trend, in 1987/88 the government planned to invest 342 million birr
Ethiopian birr
The birr is the unit of currency in Ethiopia. Before 1976, dollar was the official English translation of birr. Today, it is officially birr in English as well....
in industrial enterprises to increase production capacity. In 1989 the government issued Proclamation No. 11, which set forth policies intended to attract foreign investment.
Mixed economy
Finally, in March 1990 president Mengistu Haile MariamMengistu Haile Mariam
Mengistu Haile Mariam is a politician who was formerly the most prominent officer of the Derg, the Communist military junta that governed Ethiopia from 1974 to 1987, and the President of the People's Democratic Republic of Ethiopia from 1987 to 1991...
announced the replacement of Ethiopia's socialist economic system with a mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
. Among the proposed changes were that private investors would by permitted to participate in all parts of the economy with no limit on the amount of capital invested.
See also
- Economy of EthiopiaEconomy of EthiopiaThe economy of Ethiopia is based on agriculture, which accounts for half of gross domestic product , 43% of exports, and 85% of total employment....
- Industrial development policy of EthiopiaIndustrial development policy of EthiopiaBetween 1950 and 1960, the imperial government of Ethiopia enacted legislation and implemented a new policy to encourage foreign investment in the Ethiopian economy...