- Manufacturing in Ethiopia
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.
In 1957, Ethiopia 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.
In 1975 the Derg 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.
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 strikes and demonstrations also closed the approximately 30 percent of the country's manufacturers that had been located in that region.
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.
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 Ogaden, 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.
Finally, in March 1990 president Mengistu Haile Mariam 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.
Ethiopia topics Regions History Economy Politics · Military Geography
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