An international trade and investment consultancy firm has urged the Ethiopian government to liberalise the financial and telecom sectors to boost benefits from the African Growth and Opportunity Act (AGOA).
The Washington-based consulting firm specializing in international trade and investment, Manchester Trade Limited, was represented by its Managing Director, Anthony Carroll, at the Fifth Africa World Business Congress (AWBC) and the First IGAD Investment Forum (IIF).
"Ethiopia can scale up its benefit from opportunities available through AGOA if it liberalises its financial and telecom sectors," Carroll told Fortune.
Though AGOA is working for Ethiopia, steep transport costs as the country is landlocked, ill developed telecommunications facility, foreign exchange control problems, and vastly under-skilled labour that lack entrepreneurial culture were cited by Anthony Carroll as major challenges to the country's potential to attract investment.
Carroll's presentation at the AWBC and IIF held at the UN Conference Centre in Addis Abeba from March 3 - 5, 2009, also included political challenges, including conflicts in Somalia and the Sudan, and US concerns on human rights issues.
"Liberalizing the financial and telecom sectors does not necessarily guarantee an increased investment," a senior government official on economic matters told Fortune. "Ethiopia has much greater investment than some neighbouring countries which have liberalized the sectors," the official said in defence of his government's stance.
Neither does the official consider instability in Somalia and the Sudan as affecting the investment climate in Ethiopia to that extent.
"Sudan, a country the west alleges to have the worst human rights record, has a higher investment flow than many African countries," the official said.
Ethiopia has been earning increasing revenue from the export of textiles to the US market since it started exporting a number of commodities to the US market when the AGOA was signed in 2000. In the early years of the act, Ethiopia was not tapping the benefits of the AGOA as other African countries, such as Mauritius, did. Over the past couple of years, however, it has been increasing its volume of exports, due to which revenue has shown an uphill trend.
Ethiopian exports to the United States in 2008 doubled from 2007. The textile and garments sector - long considered an under performer given its potential in Ethiopia and the competitive advantage offered under AGOA's zero tariff preference - achieved the highest total exports with an impressive increase of over 100pc from 4.5 million dollars in 2007 to 9.3 million dollars in 2008, according to a press release USAID sent to Fortune.
NOVA Star Garment Plc, established in 2005, is one of those textile companies taking advantage of the act. Located in Gelan area, near the Atlas Resort on the outskirts of Addis Abeba, NOVA Star has been exporting sportswear, and health care and housekeeping uniforms to the US market.
"Above 99pc of our products are directly shipped to the US market," Mohammed Omer, deputy general manager of the company, told Fortune."Our export earning in 2008 was 1.1 million dollars, while that of the previous year was 700,000 dollars."
Nationally, from January to December 2008, Ethiopia's exports to the US market through AGOA reached 18 million dollars, surpassing that of the same period last year, which had brought in 8.9 million dollars in earnings, according to the press release. Total Ethiopian exports to the US also rose by 72pc, from 88 million dollars the year before to 152 million dollars currently.
"Ethiopia is one of the few African countries to show such a steady increase in exports," Addis Alemayehu, chief of party of USAID's VEGA Ethiopia AGOA Plus Program said.
The Ethiopian government has been providing technical assistance to NOVA and other companies that export to the US market. The assistance ranges from human resource training to granting the companies tax holidays.
"This emanates from the government's commitment to support the export sector," Hailu Abebe, head of Public Relations and Information department with the Ministry of Trade and Industry (MoTI), told Fortune. "The government will continue to provide similar assistance," Hailu said.
Ethiopia's growth rate for AGOA eligible exports in 2008 is much higher than the 30pc average of other bebeficiaries from the Act.
Other sectors that benefit from AGOA have also recorded significant increases, including agriculture products (100pc), minerals and metals (471pc), and other manufactured products (243pc).
The AGOA was signed into law on May 18, 2000. The Act offers incentives for African countries to open their economies and build free markets. Former US President, George W. Bush, signed amendments to AGOA, known as AGOA II, into law on August 6, 2002. AGOA II substantially expands preferential access for imports from beneficiary Sub-Saharan African countries.
The modified AGOA Acceleration Act of 2004 (AGOA III, signed by Bush on July 12, 2004) extends preferential access for imports from beneficiary Sub Saharan African countries until September 30, 2015; extends third country fabric provision for three years from September 2004 until September 2007; and provides additional Congressional guidance to the US Administration on how to administer the textile provisions of the bill.
Manchester Trade, which assists private firms and governments to position their products and services to gain maximum advantage from free and fair trade by providing information and analysis of national trade and investment regimes, and by working with clients on policy and business development initiatives, also suggested through its Managing Director that AGOA needs an extension beyond 2015.