MADDA WALABU UNIVERSITY

COLLEGEE OF AGRICULTURAL AND NATURAL RESOURSE

DEPARTMENT OF AGRICULTURAL ECONOMICS

ASENIOR SEMINAR ON
PERFORMANCE OF EXPORT SECTOR IN THE ETHIOPIAN ECONOMY
SUBMITTED TO THE DEPARTMENT OF AGRICULTURAL
ECONOMICS

BY: Firomsa Gizaw

Id No Ugr/15973/12.

ADVISOR: Negera E. (Msc).

Bale Robe, Ethiopia

March 2022
 TABLE OF CONTENT
Contents Page
Table content_________________________________________________________________i
Acknowledgement.____________________________________________________________ii
List of Aberveation. .......................................................................................................................iii
1 INTRODUCTION........................................................................................................................1
1.1 BACKGROUND__________________________________________________________1
1.2 statement of the Problem___________________________________________________2
1.3 Objective________________________________________________________________ 2
1.3.1 General Objective:.................................................................................................................2
1.3.2 Specific objectives:...............................................................................................................2
1.4 Significance of the Seminar.................................................................................................. 3
2 LITRETURE REVIEW................................................................................................................4
2.1.Definition of Export________________________________________________________4
2.2 A Review of the export policy in Ethiopia ..........................................................................4
2.2.2 The post 1990/91 periods......................................................................................................5
2.3 Export and Economic Growth 6
2.4 EMPERICAL REVIEW ON EXPORT PERFORMANCE 8
3. CONCLUSION AND RECOMMENDATION........................................................................10
3.1 CONCLUSION 10
3.2 RECOMMENDATION 10
4. References..................................................................................................................................12
 LIST OF ABBRVIATION

GDP Gross Domestic Products

GNP Gross National Products

IMF International Monetary Foud

WB. World Banks

SAP. Structural Adjustment programing

ERCA
Acknowledgement
Being in a busy schedule, finishing my senior paper in time has not been possible without the
help of others.

Firstly, thanks to God, who help me and keeping me inspired for all things.

Secondly, my special thanks to my advisor Instructor Negera E. (MSC) for his guidance and
comments throughout the development of this seminar.

Finally, I would like to say thank you to all my friends and dorm mate students for their
provision of different working methods.
1. INTRODUCTION

1.1 BACKGROUND
The Ethiopian economy had recorded a promising growth performance during the imperial
regime, which was declined after the mid-1970s. In the Derge regime, the overall economic
performance was extremely low and real aggregate variables were reduced. Since 1992,
Ethiopia has tried to adopt reform packages with the aim of reversing the deteriorating
economic conditions and put the economy in a direction of sustainable growth. However, the
economy remains weak and sensitive to shocks (Kagnew W., 2007).

Like other Sub-Sahara African economies, the Ethiopian economy is essentially agricultural
based and highly dependent on earnings from fragmented household agricultural activities. The
performance of the economy is guided by the performance of the agricultural sector that
dominates the country’s export basket and the share of non-agricultural exports is very narrow.
Even though the share of non-coffee exports has been rising remarkably in recent years, still
coffee remains the principal export product but its relative significance is now at a historic low
(ERCA, 2010).

Coffee export has taken the biggest share compare with to others commodities. However, the
share of the country supplies to world market is very few compare with the world top coffee
exporter countries, such as Colombia, Brazil and Vietnam. Coffee export reached high export
and the country share of trade to world market was 199, 446 metric and 0.01 ton respectively in
the year 2009 (WTO, 2007). According to Alemayehu (2006) the main reason of the Ethiopia
export constraint comes from the supply side. The country entrepreneurs depend on export of
very few primary products for a century. On the others hand the demand aspect also has impact
on the country export volume because of depending with very few trade partners.

Total export earnings during 2011/12 amounted to USD 3.15 billion, about 14.8 percent higher
than the previous fiscal year. The growth was largely attributed to increased earnings from
oilseeds (44.6 percent), gold (30.5 percent), live animals (40 percent), pulses (15.8 percent),
flower (12.4 percent), meat & meat products (24.5 percent), fruits and vegetables (42.7 percent),
leather & leather products (5.9 percent), and chat (0.8 percent). Revenue, from export of coffee
declined by 1 percent in 2011/12 and amounted to USD 833.0 million. This slight fall in export
earnings from coffee was solely attributed to the 13.6 percent decline in volume of export
despite higher price. As a result, the share of coffee in total exports went down to 26.4 percent
from 30.6 percent of preceding year (NBE, 2011/12).

1.2 statement of the Problem

Majority of developing economies imports the industrial commodities that helps for their
development while, they depend on very few primary products for their export. Due to excess of
their import payment over earnings from export, most of them have the deficit on current
account. The income elasticity of demand for primary product is relatively lower than other
industrial commodity goods. The famous economist such as Todaro and other economists
agreed that the export potential of most of the third world countries has been relatively weak
compared with export performance of the developed countries (Todaro, 2009).

Low foreign exchange earnings reduce the import of essential capital goods; induce
deterioration in the quality of socio- economic infrastructure, which are indispensable for the
nation. To overcome such chronic micro-economic imbalances and realize developed socio-
economic infrastructure, Ethiopia needs to increase as well as exploit its agricultural potential
since agriculture is the base for the economy and it has significant contribution for development
of industrial sector of the country.
In the year 2010 Ethiopia import bill was 8.7 billion while export bill was 1.7 billion, there is
very great imbalance between export revenue and import expenses in country (IMF, 2010).

1.3 Objective

1.3.1 General Objective:

The main objective of this seminar was to review the performance of the export sector in the
Ethiopian economy.

1.3.2 Specific objectives:

 To review the relationship between Export and economic growth in Ethiopia
 To review on the major commodities that determines export performance in Ethiopia.
 To review the performance of the Ethiopian export sector from 1998-2016
1.4 Significance of the Seminar.
The result of this seminar believed to provide the following advantages: First, the paper reviews the
major trend and performance determining commodities of the country’s export. Thus, it helps to generate
information that policy makers can make use of it to design proper and effective policy by taking in to
consideration all the problems on export growth and foreign exchange earnings which are revealed by
the research findings.

.
2 LITRETURE REVIEW

2.1 Definition of Export

Export is one of international trade of good and service a product in one a country and purchased by
resident of another country.

According to Todaro 10th edition, Export is a function of international trade whereby goods produced in
one country are shipped to another country for future sale or trade. The sale of such goods add to the
producing nations gross output. If used for trade, exports are exchanged for other products or services.
Exports are one of the oldest forms of economic transfer, and occur in large scale between nations that
have fewer restrictions on trade, such as tariffs or subsidies.

The term export means shipping the goods and services out of the port of a country. The seller of such
goods and services is referred to as “exporter” who is based in the country of export whereas the
overseas based buyer is referred to as an “importer”. In international trade “exports” refers to selling
goods and services produced in the home country to other market.

2.2 A Review of the export policy in Ethiopia

Performance in Post-Derg Ethiopia

The amount of customs duty on coffee at the outset of the reform process was 15 birr per 100
kg. There was also a transaction tax of 2 percent and a cess tax of 5 birr per 100 kg. A surtax is
also collected on coffee based on the daily surtax rate of the international coffee market prices
(see Alemayehu 2003b for details). The post-Derg government also established two types of
duty incentive schemes: “duty draw back schemes” for those who wholly or partially or
occasionally engage in export sector and “duty free importation schemes” for those wholly
engaged in supplying their products to foreign markets.

Moreover, exporters have the right to retain 50 percent of their export earnings and remittance
in foreign currency in a retention account. Of this 50 percent, the account holder must offer 40
percent for sale no later than 21 days from the date of entry to commercial banks at negotiated
 rates, or to the auction market through their banks. The remaining 10 percent is used by the
account holder for import of goods and services, export promotion, and any other payment
specifically approved by the National Bank (see Alemayehu 1999b). In general, there has been a
major policy shift since 1991, essentially from a controlled regime to a more liberalized one. It
is interesting to examine the impact of this shift on exports and imports.

2.2.2 The post 1990/91 periods

Since 1992, Ethiopia under the support and guidance of international monetary fund (IMF) and the
World Bank (WB) has undergone liberalization and enhanced structural adjustment program (SAP)
to control internal and external imbalance of the economy

One of the basic tasks of the new policy regime is to increasingly open the economy to foreign
competition with a view of benefiting the economy from expanded market. The tools implemented
by the new policy regime include devaluation of the birr and step-by-step liberalization of the
foreign exchange market, streaming export and import licensing system, tariff reduction and
provision of incentives to exporters, abolishing taxes on exports and subsidies to parasitical export
enterprise, encourage export oriented investment, introduction of duty drawback and foreign
exchange retention scheme and minimizing administrative and bureaucratic procedure(Transitional
Government of Ethiopia, 1991).

Moreover, the country export policy of post 1990/91 involves promoting an export development
strategy, establishing export supporting institutions and export specific incentive schemes like
foreign exchange retention scheme, export duty incentive schemes such as duty drawback
schemes, voucher scheme and bonded manufacturing ware house scheme, export credit guaranty
scheme and external loan suppliers or foreign partners credit. However, the current export
performance has remained sluggish. The average value of export earnings between 2011/12 and
2014/15 was $3.1 billion. In 2014, the value of merchandise exports totalled $3 billion, posting
8.5% decline year on year. This was due to the fall in volume of exports (such as coffee and
pulses) and decrease in gold, oilseeds and pulses prices.

In 2015, Ethiopia’s exports accounted for about 2.9% of total countries economic output. From continental
perspective, $2.1 billion or 41.8% of Ethiopian exports by value were delivered to Asian. Countries while
24.2% were sold to European members. Ethiopia shipped on other 23.2% worth of goods to African
importers. Given Ethiopia’s population of 99.5 million people, its total $5 billion in 2015 exports translates
to roughly $51 for every resident in that country.

In 2016, export in Ethiopia increased to $809.5 million in the second quarter of 2016 from $765.7 million in
the first quarter of 2016. Exports in Ethiopia averaged $621.58 million from 2006 until 2016, reaching an
all-time high of $984.2 million in the second quarter of 2012 and record low of $265.9 million in the second
quarter of 2007.

2.3 Export and Economic Growth

The relationship between export performance and economic growth is an area that has been given
much attention by economists. The results of different studies on export expansion and economic
growth has broadly classified economists into those that support the hypothesis that export growth
has a positive impact on economic growth and those that support the hypothesis it has a negative
impact on economic growth. The central question to be addressed in this section is “how does
export performance influence economic growth.

Export expansion leads to technological improvements resulting from foreign competition that is
crucial for improvement of factor productivity (production inputs) and better utilization of
resources (Kavoussi, 1984, Moschos, 1987).So if there is competition there should be good
performance of economic growth.

According to export-led growth theory; “exports generate much needed foreign exchange, which
can be used to provide the public funds needed to divert production towards the most growth
enhancing industries. This specialization towards more productive export industries and away from
relatively inefficient sectors increases human capital through an increase in the general skill level
of the country. Another argument for the export-led growth hypothesis is that it may be seen as
part of the product and industry life cycle hypothesis.

This hypothesis describes the economic growth as a cycle that begins with exports of primary
goods. Over time, economic growth and knowledge change the structure of the domestic economy,
including consumer demand, which encourage the more technology intensive domestic industry to
begin exporting. As domestic demand ebbs (shrink back), economic growth arises from
technologically advanced exports” (Giles and Williams, 2000).Export-led growth theory also
suggests that “export promoting polices enhance economic growth”. Supporters of this theory
argue that export has strong correlation with economic growth and can play great roles to increase
the overall economic performance of a country. According to them, share of export is positively
related to GDP growth of a country.

Esfahani (1991) emphasized that the first and foremost purpose of exports is to relieve the import
shortage that many developing countries confront. According to him although the externality effect
of exports (efficiency of resource allocation, economy of scale and various labour training effects)
may carry some weights of their own, the major purpose of exports to GDP growth is alleviating
the import shortages, which restrict the growth of many LDCs. Speaking differently, revenue from
exports can fill “the foreign exchange gap” which is observed as barrier to economic growth.

A given economy as if it consists of two distinct sectors: “an export and non-export sector”.
According to Feder (1982), the marginal factor productivities are significantly higher in the former
than the latter. This arises from inter sectoral beneficial externalities (capacity utilization,
economics of scale incentives provided for technological improvement and efficient management
due to competitive pressures from abroad) generated by the export sector. Thus, growth can be
generated by reallocation of the existing resources from the less efficient non-export sector to the
higher productivity export sector.

Chow (1997) suggests that in small open economies, “export growth can expand their limited
domestic markets and contribute to the economics of scale necessary for industrial developments”.
Furthermore, export growth integrates domestic economy with regional and/or global economies
thereby expanding the dimension of competition to the international markets. Competition
promotes resource allocation in developing countries as they transform from less productive
farming sector to relatively more productive manufacturing sector.

Therefore, factor productivities are improved through export growth.Jung and Marshal (1985)
argue that “growth in real exports tends to cause growth in real GNP for three reasons”. First,
export growth may represent an increase in the demand for the country’s output and thus serve to
increase real GNP.
Second, an increase in exports may loosen a binding foreign exchange constraint and allow
increases in productive intermediate imports and hence result in the growth of output. Third,
export growth may result in enhanced efficiency and thus may lead to greater output.

In general all the above theories explain the different channels through which exports can induce
economic growth. The empirical studies, which support empirically the above theoretical views,
are presented below.

2.4 EMPERICAL REVIEW ON EXPORT PERFORMANCE

The contribution of export growth to economic growth has been tested by different economists
using different techniques. All the tests that have been carried out are broadly classified as those
that are based on cross-country analysis and those that are based on country specific time series
studies.

With regard to Ethiopia, few attempts have been made to test the export-economic growth
relationship. “The prices of Ethiopia's export commodities are not only highly unstable but also the
major sources of the fluctuations in total export earnings. Despite the government’s minimal
emphasis on the expansion of the export sector, exports are found to have a significant impact on
the country's growth process

In terms of magnitude, the impact of exports on the growth of output is found to be less than that
of investment. The results lead one to stress that, given the country's current economic structure;
the policy emphasis should be towards the export sector and raising the level of national savings.
To this end, both domestic and foreign private investors should be encouraged”. In so doing,
however, an environment where investors could take investment risks should first be created. The
first criterion of such an environment is the “sustainability” of policy parameters (Yohannes A,
1991).The estimation result of Debel G(2002) using 2SLS is statistically robust, “where a one
percent increase in export is related to about 0.16 percent growth of the economy”. In addition,
although

There is a direct contribution of exports to economic growth, indirectly exports can foster
economic growth substantially by inducing pubic savings, attracting foreign capital and hence
promoting investment.
It is also found that there is a positive and significant output-exports growth relationship i.e. the
hypothesis that a growth in output can positively influence exports growth is statistically
supported. Lastly, the question of causality between exports growth and economic growth is
examined using techniques of co-integration and error-correction modelling. The results showed
that the causality runs from exports growth to economic growth.

The highest share was recorded in the period 2002-2012 which was about 13.6 percent of GDP, the
lowest in period 1981/82 to 1990/91(about 6.4 percent). At the end of the Derge regime in 1991/92
the export share to GDP was the lowest and weakest.
3. CONCLUSION

Recently, the issue of accelerated economic growth is gaining much attention by many
development economists. The decline in economic growth of most of the Sub-Sahara African
countries and other LDCs coupled with the alarming population growth led to stagnation and
even a continual decline in the income of these countries. This led to closer look into the
economic structure of these countries to determine factors determining the growth and hence
help these countries to achieve a sustained economic growth.

Despite the focus on export diversification in the development plans of the country (Ethiopia),
the export pattern is still dominated by traditional products and more so on coffee whose world
price is fluctuating due to;

Lack of economic transformation and absence of structural change in the mode of production.

Still primitive mode of production predominates in the major sector

The review summarized in this seminar revealed that the country’s export sub-sector is highly
dependent on agricultural sector; particularly on few primary products discussed earlier namely
coffee, chat, flower, etc in group known as cash crops. The justification behind increasing
foreign exchange earnings from the export of those agricultural products is from the stand point
of the low level of industrial development of the country. The performance of the sub-sector is
closely related with the country’s agriculture production. However, the agricultural sector is
vulnerable for natural climate and its share to GDP is falling down.

Finally, our nation’s exports are constrained by a number of problems categorized as, the
internal and external factors. Under such conditions the overall performances of the export
sector were satisfactory over the past three decade
4. REFERENCES

Chow P.C. (1987), "Causality between export growth and Industrial Development", Journal
of Development Economics.
Imperial government of Ethiopia (1968-1973) `` Second five year development plan”
Development plan policy maker, MoFED Addis Ababa, Ethiopia
, W.S. and Marshall, P.J. (1985), "Exports, growth and causality in developing countries",
Journal of Development Economics,
Jung Kavoussi, R.M. (1984),"Export expansion and economic growth further empirical
evidence",Journal of Development Economies,
Michaely, M.(1977), "Exports and economic growth: An empirical Investigation", Journal
of Development Economies,
National bank of Ethiopia (NBE) various year report, Addis Ababa, Ethiopia
See Alemayehu 2003 b for detalils
Todaro M. and Smith S.(2009),`` Economic development `` 10th Edition Long man New
York,
Yohannes Ayalew: Export Instability and Economic Growth (1989/90)

Remembere