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Pushing GTP2 forward through IAIPs

Pushing GTP2 forward through IAIPs

By Bereket Gebru

2/26/16

The last five years period of the implementation of the Growth and Transformation Plan pushed Ethiopia’s odds of becoming a middle income country by 2025 further forward. The economy managed to grow at an annual rate of 10.1% in the specified time. That put the country among the fastest growing economies in the world shredding any doubts over Ethiopia’s capacity to lift itself out of poverty.

During the first GTP period, the agricultural sector that employs over 85% of the country’s population grew by 6.6% while the service sector registered a 10.7% growth and the industry sector went up 20%. The manufacturing sector incorporated in the industrial sector grew by 13% in the first four years of GTP 1. The share of the agricultural sector to the total economy stood at 45% in 2011 with the figure going down to 40% by 2013/14. During this time, the share of the service sector grew from 45% to 46% becoming the biggest sector in the economy. The industrial sector also grew from 11% to 14% during the specified period.

Although the manufacturing industry grew at an average annual rate of 13% during the first four years of the GTP 1 period, the fact that there is not enough gap with the total economic growth means that the sector didn’t show that much change in its share of the economy with the figure remaining below 5%. The fact that the share of the manufacturing sector to the total economy is half of the average for sub-Saharan Africa and Least Developed Countries is a reflection of the weak structure of our economy.

As a result of all these dynamics, the structural transformation of the economy from agricultural led to industrial led has been considerably lower than planned. Ensuring economic structural transformation is vital towards sustaining our economic growth. The journey towards middle income economy cannot be guaranteed without industrial development and structural transformation.

Besides building up the economy’s productivity and competitiveness, the expansion of manufacturing industry creates technological capacity building, industrially skilled manpower, large number of jobs and income. Expansion of manufacturing industry also complements the growth of the agricultural and service sectors. Therefore, it is imperative that significant effort be geared towards the development of manufacturing industry in the country.

The second Growth and Transformation Plan that extends from 2015/16 to 2019/20 aims at sustaining the achievements of GTP 1 and addressing its short comings to create a fertile ground for the realization of the national vision of becoming a lower medium income country by 2025.

GTP 2 is expected to lay the ground work for the country’s plan to become a leader in light manufacturing in Africa by 2025. It is also expected to take a huge step towards increasing the contribution of the industrial sector from 15% in 2015 to 28% in 2025. In doing so, it is expected to revamp industrial sector growth from contributing 5% of GDP in 2015 to 18% of GDP by 2025. This trend would help achieve the goal of deriving 6.7% of GDP from agro processing by 2025.

The major activities that GTP 2 focuses on are modernization of agriculture, industrialization, transformation and export development. The Ethiopian government recently announced the construction of four integrated agro-industrial parks will be launched in the coming month of September. These four agro-industrial parks are to be built in Oromia, Amhara, Tigray and Southern Ethiopia with the project expected to consume 1.5 billion USD and time duration of four years.

All four of the focus areas would be positively affected by the construction of the Integrated Agro Industrial Parks (IAIPs). By alleviating in the agricultural supply chain through the creation of farmer market linkages and providing the infrastructure to have their products processed, the construction of the IAIPs helps modernize agriculture in Ethiopia. The subsistence farming system operational throughout the country could also be increasingly replaced by a system of unions of farmers that go all the way to process their products. With lack of timely and adequate raw material supply both in quality and quantity restricting agro-processing firms in Ethiopia to perform with only less than 65% of their capacities, the IAIPs create more market for farmers providing the incentive to produce more. That in turn creates more pressure on the agricultural sector to build on its productivity pushing modernization further along the way. 

With the parks expected to create investment opportunities for over 400 companies engaged in agro-processing, the role of the construction of the parks to industrialization is quite obvious. Considering the country plans to become a leader in light manufacturing in Africa by 2025, the proliferation of agro-industries in all corners of the country would be a huge step in the right direction.

The transformation of the economy from agriculture led to industry led calls for the development of both the agricultural and industrial sectors. With agricultural development in the country going according to plan, the major concern here is manufacturing industry as it is not performing well. As a result, the development of manufacturing industry is key in realizing the process of transformation. With the IAIPs pulling the agro-processing industrial sector forward, they create a conducive environment for the transformation of the economy from agriculture led to industry led.

With processed agricultural and food products as outputs of the IAIPs, the companies are certainly going to engage immensely on export. Therefore, these parks are going to help increase the volume of exports from Ethiopia. Furthermore, they are set to increase the share of processed products from the total of the country’s exports.

In general, the IAIPs play considerable role in pushing the implementation of GTP2 forward by removing some obstacles that could hold it back. With the infrastructural problems they address, the off-farm jobs they create in rural areas and best management practices they entail, the IAIPs are a wonderful and timely introduction into the Ethiopian economy.  

 


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