s the five-year Growth and Transformation Plan (GTP) slowly runs-down its clock, things seem to be getting rather complicated for policymakers and the economy as a whole.
For most of the past decade Ethiopia embarked upon the unchartered territory of double-digit GDP growth, with only a handful of major macroeconomic challenges slowing its progress. As examples persistent and high consumer price inflation and severe shortages in foreign currency can be sited as major hurdles for the policymakers. Obviously, these two are not only ones; but they may well have been the most difficult. Now it appears that declining export revenue is joining the list of challenges. Expected to play no small part in financing the extensive foreign currency requirements of some of the flagship projects envisaged under the GTP, the revenue collected from the minuscular merchandise export is closely watched.
Although changing in recent periods, a number of studies indicate that the structure of Ethiopia's export sector remained largely the same over the years. That is one highly dependent on less value adding agriculture commodities, which usually fetch low and fluctuating prices on the international market. In this, it has always been the case that the share of manufacturing from the overall export intake is highly marginal.
For what it is worth, the latter still trails by a long margin in terms of contribution to the export revenue. But surely a sign of catching up seems to be there. Talking about recent trends observed in the past two years, one can witness this gradual closing of the gap. This is due to the overwhelming priority and attention offered to the manufacturing sector and its competitiveness on the international market. While exports of manufactured articles gain significance in response to favorable conditions for this sector, the other reason, which perhaps is a cause for alarm, is the subsequent decline in export revenue coming from agricultural commodities.
Well, not just agricultural commodities; the decline was observed in 'the most important' commodities such as coffee and sesame seed from the oil seeds and pulses family. At the start of the GTP, 2010/11, coffee in particular accounted for nearly 1/3 of the overall foreign trade intake, augmented by sesame seed, khat and gold. This in no way suggests the significance of these commodities has been undermined, and it also does not mean that the alternative manufacturing sector is anywhere near the contribution of the big export items. However, if the trends of the first three GTP years are something to go by, this sector is definitely in decline.
Slippery slope Official figures for the first five months of the current fiscal year (2013/14) as well are no different from the ones which came before them. In fact, the performance of the export sector in the period is a cause for alarm. All in all, Ethiopia pocketed some USD 1.04 billion from the export of goods within the stated period. But, the intake fell short of both the target and the figure registered during the same period last year (USD 1.18 billion).
This data, obtained from the Ministry of Trade (MoT), further indicates that even the most traditional export commodities for Ethiopia has taken a hit in the period. The overall decline in export dollar receipt, which is around 12 percent less compared with the previous year, is highly attributed to agricultural and mineral exports. In this category agriculture fell 13 percent, while the mineral sector dived 31.0 percent in the period in question. Of course, the downward trend was partially offset by the improvement in both the manufacturing sector and the flower and horticultural sectors, registering 16 and 5.5 percent growth in export earning respectively.
However, the relative share of agriculture as a sector and that of coffee as a single commodity has been the most dominate. For instance, for the five years, the sector threw in USD 633 million to government coffers, some USD 93.9 million short of last year. Coffee leads the way, cashing in nearly USD 200 million, followed by khat, oil seeds and pulses, live animal and cereal, bringing in USD 125.6, 117.6, 88.7 and 83 million respectively. Coffee is also one of the biggest losers, with a whopping 38 percent decline compared with its performance last year. Nevertheless, cotton exports appear to be taking the biggest hit, falling by 65.2 percent, while the export of eucalyptus tree slipped 30.1 percent for the period in question.
While both coffee and oil seed and pulses show decline in volume of export, it seems peculiar that the dollar receipts from the export of the latter did not decrease. Given a large difference in the price of sesame seed between the two periods, such discrepancy might not look odd. Taking the performance of one month, November, both coffee and sesame took a great hit, with 57.6 and 20.3 percent lower performance in comparison with the corresponding month last year. Coffee lost USD 122.5 million between the two periods, and supply was reduced by 21,845 tons. Although the GTP did not consider the two agricultural products to be sustainable export bases for the economy, the kind of decline that has been observed during the past two years and beyond was not what it had in mind. In fact, it was last year that coffee export revenues were projected to surpass the one-billion-dollar mark, reaching two billion dollars at the end of the GTP.
If it were to be compared with the targets set on the GTP, the sector is nowhere near the expectation of the economic planners. What is more alarming is not living up to the GTP though; rather the fact that the sector could not better its performance from one year to the next, with the five month intake for the current year indicating another disappointing year to come. The information obtained from the MoT indicates that coffee shipment contracts due for the month of November were generally very few. This was due to the consecutive decline observed in the international price of coffee, the ministry continues to argue.
The ministry also maintains that it is usually a time where carryover crops from the previous year would be finished, and with late delivery of the new crop to the Ethiopia Commodity Exchange (ECX) this year, it was not surprising to see the commodity suffer. Most of these factors were also shared with sesame export, according to the MoT. Nonetheless, the declining trend observed in the two commodities is a problem that has been around for quite some time. In fact, the issues with both commodities go back to the time when the two were first inducted into the then newly established ECX. Both needed time to adapt to the new trading system, for starters. But the extent of the damages was not equivalent for coffee and sesame seed.
Especially in the first year that coffee was included on the trading floor, the slip in export revenues was dramatic, to say the least. Meanwhile, sesame seed did not sustain that level of damage while assimilating into the trading floor family. Founder and former CEO Elleni Gebre-Madhin (Ph.D.) noted in a piece she wrote a while back that right after the induction of coffee things were really tough. She remembered that issues in connection with the future of the specialty coffee trade in Ethiopia were a real test. But, it did not stop there. Once it got acquainted with the trading floor, coffee's challenges continued from the side of the administrative body.
On more than one occasion coffee suffered from a collection of notorious trade regulations issued by the trade administrative body. Noteworthy is the severe threat the sector faced back in 2011, and where it came close to losing its market credibility due to a large number of contract defaults. The Meles Zenawi had to address the issue at the time, alarmed with the imminent threat of losing the coffee market. Meles, like many analysts and sector players, capitalized on the issue of contract default; the problem was not only for coffee exports, however, partly sesame seed exports also took a hit. It was quite surprising to see one of the reasons that MoT highlighted for this year's failure was this contract issue.
In fact, the ministry identified that contractual agreements due for the month of November were not executed properly because of the price variation between the due date and the date of the signing of the contract. This is one issue which was controversial among sector players and professionals. According to some players, the forward looking contractual agreement would be signed without knowing the price of the commodities at the local market i.e. ECX. Ultimately, that would catch up to the exporters if the price of the commodity at the time of the contractual agreement fell short of the price at the due date.
There are many reasons as to why such risk continues to be borne by the exporters. According to an exporter who is active in the oil seed and pulses sector, the blame rests first and foremost on exporters. Even at this time, he says, the price of sesame seed at the ECX is nowhere near to being profitable for Ethiopian exports, since the prices on the international and local markets, including the cost to move it to the international market, are equal.
He argues further that sometime the unnecessary speculative price projections, usually not based on the right information and scientific way of interpreting it, have been driving the price of sesame at ECX. "Sometimes I feel that we think of our sesame crop too much. Some are sure that if the price is higher in local market and if we can hold our product long enough, we can force international prices to rise," he explains. This is largely a misguided notion, he continues, sesame crop is a perfectly substitutable crop, where the demand is highly elastic. On top of that, unreasonable competition among exporters is driving the price up, he claims. The bottom line is that the slippery slope that kick started in the past year or so in the export sector seems to be going unnoticed.
Failure to launch