Sea ports are very vital for the economic development of any country. Some countries have several ports for facilitating the import and export of goods. Countries deprived of such natural endowments suffer from exorbitant charges of portal services.
Developed countries have revolutionized the way they ship and track shipments from anywhere in the world. They have expanded their reach to a wider group of customers. In so doing they reduce service costs and they run their operations online quickly.
It is, therefore, very vital to use efficient ports. Ports are very significant for the Ethiopian economy, despite Ethiopia being a landlocked country.
Access to efficient and reliable ports is crucial, decisive, fundamental and essential for facilitating international trade. It ensures the smooth flow of goods to local and international markets. In so doing it supports economic growth and development in the country. There are quite a lot of strategies in which ports contribute to the Ethiopian economy.
Ethiopia's case for reliable and cost-effective seaport access is very strong. To secure its economic future, it must lower the economic costs associated with being landlocked. Studies reveal that generally landlocked countries tend to be 20% less developed than they would be if they had access to the sea. This is partly caused by cost of trade such as transportation costs ranging between 50 to 260% higher for land locked countries. For Ethiopia to achieve its development objectives, it will require "export-oriented" industrialization and higher productivity in agriculture.
The country needs to have more control over trade-related costs and ensure stability on both sides of its fronts with neighboring countries. It is reported that transportation costs reach up to 16% of the value of export. It is figured out that foreign trade amounts to one-quarter of the gross domestic product of developing countries. The ports Ethiopia currently uses are becoming expensive, accompanied by storage space and empty containers for export. These factors have motivated Ethiopia to engage in aggressive port diversification initiative. Currently the number of sea and dry ports Ethiopia uses is on the rise.
In addition to the Djibouti port, Kenyan border Moyale dry port, Somalilands's Berbera and Djibouti's Tajura are emerging as alternatives. However, the latter routes lack the infrastructure, including roads, petrol stations, service and repair shops, etc. to support bulk shipments.
Ethiopia has significant leverage over Djibouti in terms of area and population. It is the leading revenue generator ahead of other nations that leased naval bases from Djibouti. Ethiopian trade has been reported to have generated the largest revenues for the Djiboutian economy.
The Ethiopian service sector accounted for more than 80% of the Djiboutian GDP, much of it accounted by port services and logistics. With all these services, Ethiopia has still the economic case for securing reliable access to seaport. If Ethiopia is to attract both domestic and foreign investments into its industrial and agricultural sectors, it must guarantee investors that they will have access to global markets at reasonable cost. The planned railways indicate the country's industrialization and transport programs. As the planned railway network reveals, Ethiopia's seaport options are largely limited to Djibouti, which is an important maritime trade route. Both countries benefit from the growing services of seaports.
Economically efficient seaports give opportunities for Ethiopia to diversify its trade partners. This helps her to engage in profitable global markets. This opportunity is enhanced through diversification of trading partners, associates and collaborators. Diversification is vital for reducing dependency on specific regions and enhancing economic resilience. Such a strategy helps in reducing transportation costs in global trade. Proximity to efficient ports can help reduce costs.
Landlocked countries often face higher transportation expenses. However, well-connected and strategically located ports can mitigate these economic costs. Ethiopia has opportunities for peaceful economic cooperation with countries bordering the seas. This provides supply chain efficiency and benefits. In this regard, seaports play a crucial role in enhancing the overall efficiency of the supply chain. Studies indicate that these ports facilitate the smooth delivery of goods from ships to land transport. In so doing, they reduce waste of time and facilitate transiting activities.
Modern transit services ensure timely delivery of goods thereby minimizing cost. Efficiency and effective maritime services attract foreign direct investment (FDI) which will facilitate economic development in Ethiopia. Thus, access to reliable ports makes the country more attractive to foreign investors.
Investors consider efficient transportation infrastructure, including roads and ports that facilitate the import and export of goods. These transportation facilities are critical factors when investors decide to establish or expand their operations in the country. Investors critically consider the facilities at seaports for the enhancement of their external trade. They may continue with economic diversification in which seaports are considered. Ports support economic diversification by facilitating the import of raw materials and the export of finished goods.
The import of other inputs such as machinery, spare parts and tools require efficient port services. This is particularly relevant for industries such as manufacturing that require a diverse range of inputs. Export of manufactured goods also requires efficient and modern port services.
Ethiopia benefits from port services in different ways. The operation and maintenance of ports create employment opportunities. Job-seekers may have to be trained in activities related to port services. Additionally, the industries and businesses that rely on port services contribute to skill development and income for unemployed persons. Of course, they also generate revenues for the government from port operations and employee income. Ports generate revenue through various mechanisms, including fees for services, customs duties, and taxes on imported and exported goods.
This revenue can be invested in infrastructure development and public services, which in turn generate more employment and income for people residing near seaports. Ports contribute to broader infrastructure development. Road and railway networks are connected to the ports. These networks are extended to inland destinations creating opportunities for people residing along the roads and railways. This connectivity is, therefore, essential for the efficient movement of goods within the country.
Ports are important factors for promoting regional integration. As ports are interconnected they create proximity, closeness, contact and convenience. Those countries who own ports should provide assistance to landlocked neighboring countries. The countries may suffer from heavy costs of port services. The burden of such costs may discourage regional economic integration. As a result, the people of those landlocked countries may suffer from the burden of rising prices of imported goods. These goods may consist of basic necessities including health facilities, food items, means of transport and other items. People cannot avoid using these basic imports which require foreign exchange for accessing them. Similarly, they have to export goods to earn foreign exchange with which they import what they need. A few developing countries ensure that the imports are only basic. They do not allow import of luxury goods and services that exhaust their foreign exchange.
For developing countries to have healthy economic system, they need to improve their trade balance. They need to focus on export of goods that have the capacity to earn foreign exchange. Ethiopia's exports are essentially agricultural goods and minerals. These exports, however, require inputs or tools with which to produce them. In other words, they need machineries, tools and spare parts all of which require foreign exchange for accessing them. However, these imports enhance competitiveness at local, regional and global levels. If they fail to compete they find it difficult to maintain their balance of trade, in which values of imports become much higher than that of the exports. In this case imports have to be financed by means of borrowing from global financial institutions. These institutions charge high interest rates if the borrower country is weak in its economic performance. Such a borrower is associated with high risk and lenders avoid it to minimize losses.
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Developing countries including Ethiopia have to develop strategies for enhancing competitive ports. In a world of high competition, ports of the developing countries face dangers of being irrelevant due to their poor services. Only those countries who are engaged in new and competitive initiatives become masters of the sea with dominant shipping services. Those who lag behind would require immense efforts to move faster and surpass their competitors in the efficiency of port services. The use of port services by Ethiopia presupposes strategic considerations.
In this respect, the value of ports for the Ethiopian economy lies in their pivotal role as gateways to international trade. They are facilitators of economic diversification, and drivers of job creation and infrastructure development. Efforts to enhance the efficiency and connectivity of ports in Ethiopia require the exploring of strategic partnerships. This will be important for Ethiopia's economic development and global integration. Thus, ports are of great value for the Ethiopian economy.
BY GETACHEW MINAS
THE ETHIOPIAN HERALD TUESDAY 16 JANUARY 2024
