Manufacturing in Ethiopia has continued to play a marginal role in employment creation, export earnings, share to GDP, and inter-sectoral linkages, and it is still far from being an engine for growth and economic transformation.

More than two decades of significant investment and policy focus have little to show for aspirations to make Ethiopia into ‘Africa’s manufacturing powerhouse,’ and the sector’s ability to drive structural economic transformation remains a specter.

Development policies emphasizing labor-intensive industries with strong economic linkages, utilizing agricultural inputs, fostering export orientation, import substitution, and rapid technological transfer have hardly enabled the manufacturing sector to meet expectations.

Instead, dependence on imported inputs remains high, inter-sectoral connections are weak, and export earnings is meager and shrinking. Lean export earnings and a continued dependence on imported inputs for production have only exacerbated an ever-widening trade deficit.

Sustainable growth requires strong ties between agriculture, industry, and services, but weak sectoral linkage has stunted Ethiopia’s manufacturing growth. Ethiopia’s foreign exchange shortage is squeezing its manufacturing sector. Many manufacturers depend heavily on imported inputs and spare parts, requiring vast amounts of foreign currency, adding to the existing forex shortage.

Ethiopia has not made significant progress in pulling labor out of agriculture into more productive and industrial jobs with three-quarters of all workers still employed in agriculture. For a country graduating through the early stages of economic development, growth in the manufacturing sector is essential for sustained long-term growth and poverty reduction. The structural economic transformation that involves the reallocation of workers from the poorly productive agriculture to more productive economic activities in manufacturing is an important step towards the creation of better-paying jobs.

Ethiopia is therefore being eyed for the manufacturing sector and it is expected to be the next manufacturing power house for light manufacturing industry as the Country has a competitive advantage at different levels such low labor cost, large internal consumer market, availability of raw materials, convenient geographical and regional position. With production costs spiking in the Asian countries, it comes at a pivotal time for Ethiopia as it is attempting to make its way to middle income country by fostering manufacturing sector and by boosting the country’s share in the international market. In this perspective, light industry will be the driving force of the manufacturing sector and is expected to attract more investment, create more jobs and give way to the more heavy industry. In fact, light manufacturing generates externalities in technology development, skill creation and know-how that are crucial for the development of competitiveness.